Which of the Following Actions Would Be Most Likely to Reduce

question 35

Multiple Choice

Which of the following actions would be most likely to reduce potential conflicts of interest between stockholders and bondholders?

• A) Compensating managers with stock options.
• B) Financing risky projects with additional debt.
• C) The threat of hostile takeovers.
• D) The use of covenants in bond agreements that limit the firm's use of additional debt and constrain managers' actions.
• E) Abolishing the Security and Exchange Commission.

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Definitions:

Recoverable Amount

The higher value between an asset's fair value less costs to sell and its value in use.

Carrying Amount

Carrying amount is the value at which an asset is recognized in the balance sheet after deducting accumulated depreciation and impairment losses.

Revaluation Model

An accounting method that allows assets to be carried at a revalued amount, reflecting their fair value at the date of revaluation.

Impairment Loss

The amount by which the carrying amount of an asset or cash-generating unit exceeds its recoverable amount, leading to a reduction in value on the balance sheet.