EBK CORPORATE FINANCE
EBK CORPORATE FINANCE
4th Edition
ISBN: 9780134202785
Author: DeMarzo
Publisher: VST
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Chapter 18.7, Problem 2CC
Summary Introduction

To discuss: The way agency cost and financial distress affect a firm’s use of leverage

Introduction:

The financial distress could be a condition where a corporation cannot meet or has issue paying off its financial obligations to its creditors.

An agency cost arises when there is conflicts of interest between the shareholders. A heavily levered firm with uncertain risk of debt faces the “agency cost” problem. It includes asset substitution, debt overhang, and cash outing.

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Chapter 18 Solutions

EBK CORPORATE FINANCE

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