The Use of Debt Financing

question 65

Multiple Choice

The use of debt financing

• A) reduces agency costs between the stockholders and management by increasing the amount of risk the managers take.
• B) increases agency costs between the stockholders and management by limiting the amount of risk the managers take.
• C) increases agency costs since managers prefer to keep more retained earnings rather than paying dividends.
• D) Both B And C

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Definitions:

Model

An abstract representation of a system or process, used to simulate and predict behavior or outcomes.

Applicable

Relevant or appropriate in a particular situation, condition, or context.

World Population

The total number of humans currently living on Earth, estimated through censuses and statistical models.

Linear Model

A statistical approach for modeling the relationship between a scalar dependent variable and one or more independent variables by fitting a linear equation.