FOUNDATIONS OF FINANCE- MYFINANCELAB
10th Edition
ISBN: 9780135160572
Author: KEOWN
Publisher: PEARSON
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Chapter 12, Problem 7SP
(Capital structure theory) Which of the following statements most appropriately describes how agency costs affect a firm’s choice of capital structure? Explain.
- a. When firm owners borrow money, they have an incentive to engage in excessive risk taking (that is, investing in very risky projects) since they are managing someone else’s money.
- b. When firms have very limited investment opportunities and little debt financing combined with healthy profits that provide them with
free cash flow , their management team might squander the firm’s earnings on questionable investments.
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Chapter 12 Solutions
FOUNDATIONS OF FINANCE- MYFINANCELAB
Ch. 12 - Prob. 1RQCh. 12 - Prob. 3RQCh. 12 - Prob. 4RQCh. 12 - Prob. 5RQCh. 12 - Prob. 1SPCh. 12 - Prob. 2SPCh. 12 - Prob. 3SPCh. 12 - Prob. 4SPCh. 12 - Prob. 5SPCh. 12 - (Capital structure theory) Match each of the...
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