Question
(Capital Structure Theory) Which of the following statements most appropriately describes how agency cost affect a firm's choice of capital structure? Explain. a. When firm
(Capital Structure Theory) Which of the following statements most appropriately describes how agency cost 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 (this is, investing in very risk 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 one questionable investments.
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