The Use of Debt Financing

question 40

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 pay a dividend.
• D) b and c.

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Definitions:

Public Nuisance

Unreasonable interference with public property or creating conditions that negatively affect a community or a considerable number of people.

Trespass

An unlawful intrusion or invasion upon another person's property, which can be subject to civil or criminal legal action.

Aeronautics Act

Canadian federal legislation that governs aeronautics, aviation safety, and related activities within Canada.

Negligence

A failure to behave with the level of care that someone of ordinary prudence would have exercised under the same circumstances.