Question: 4. How does debt financing help reduce agency problems which arise when managers and shareholders have different objectives? Debt financing can help prevent managers from

4. How does debt financing help reduce agency problems which arise when managers and shareholders have different objectives?

Debt financing can help prevent managers from using excess cash on perquisites.

Debt financing may make managers too risk-averse, therefore causing underinvestment in some risky but positive NPV projects.

Debt financing can help prevent managers from using excess cash on non-value adding acquisitions.

Both A and C are correct.

Step by Step Solution

There are 3 Steps involved in it

1 Expert Approved Answer
Step: 1 Unlock blur-text-image
Question Has Been Solved by an Expert!

Get step-by-step solutions from verified subject matter experts

Step: 2 Unlock
Step: 3 Unlock

Students Have Also Explored These Related Finance Questions!

Q:

1. If the information content, or signaling, hypothesis is correct, changes in dividend policy can be important because investors view dividend changes as signals of managements view of the future....

Q:

How does debt financing help reduce agency problems which arise when managers and shareholders have different objectives? Debt financing can help prevent managers from using excess cash on...

Q:

How does debt financing help reduce agency problems which arise when managers and shareholders have different objectives? Debt financing can help prevent managers from using excess cash on...

Q:

1.How does debt financing help reduce agency problems which arise when managers and shareholders have different objectives? a)Debt financing can help prevent managers from using excess cash on...

Q:

Question 1 Which of the following statements does NOT correctly explain the effect of additional debt on the weighted average cost of capital (WACC)? A) Debtholders' prior and "fixed" claim increases...

Q:

I need two ratios provided based on the financial statement of a company (fullfinancial attached). I need the price-earnings ratio (the formula of price per share divided by earnings per share) and...

Q:

I need an expert for this. please check info for details. For exclusive use Florida International University, 2015 REVISED SEPTEMBER 6, 2013 CRAIG FURFINE KEL757 The Return of the Loan: Commercial...

Q:

please answer questions 5, 6, &7 "Why do things have to be so complicated?" said Mark to Clive, as he sat at his desk shuffling papers around. "I need you to come up with a convincing argument."...

Q:

1. Prepare a pro forma statement showing the annual cash flows resulting from the Lawn Robot project, and compute the NPV and IRR of the project. In addition to this base case, also consider the...

Q:

1. The question to be addressed is, what would be the impact of the project in terms of short-term profitability? Quantify the impact by projecting the income statement for the next year and...

Q:

Q1: Find the plastic moment capacity M, of the continuous beam shown in Fig. Q1. 24 kN 30 kN 10 kN/m 5 kN/m G 1.5Mp 2Mp O 1.5Mp 2Mp F | 4m 3m 3m 6m 8m 6m Fig. Q1

Q:

Consider the following circuit using an ideal OP-Amp. The I-V characteristics of the diode is described by the relation. = 1 ( 1 -1) forward bias) 0.1 V where V = 25mV, I, 1uA and V is the voltage...

Q:

Management of Ivanhoe, Inc., is currently evaluating three independent projects. The cost of funds can be either 1 3 . 6 percent or 1 4 . 8 percent depending on their financing plan. All three...

Q:

The power of the courts to review actions taken by the other branches of government and the states, and to rule on whether those actions are constitutional or not is called Group of answer choices...

Q:

5.92 An ambulance service receives an average of 15 calls per day during the time period 6 p.m. to 6 a.m. for assistance. For any given day what is the probability that fewer than 10 calls will be...

Q:

5.100 An investment portfolio in Singapore specializes in airline stocks and contains two of them. One is Singapore Airlines (mean: 0.12; standard deviation: 0.02), and it accounts for 30% of the...

Q:

5.96 A management consultant found that the amount of time per day spent by executives performing tasks that could be done equally well by subordinates followed a normal distribution with a mean of...