Managers of publicly traded corporations are often compensated at least in part based on firm profitability, and shareholders prefer higher stock prices to lower stock prices. Stock prices are determined at least in part based on firm profitability, so it appears that mangers' interests and stockholders' interests are well$-$aligned. Which of the following is true about conflicts between managers and shareholders?

Question $10$Select one:

a$.$

Managers' interests and stockholders' interests are well aligned only when firms are $100\%$ debt financed, but bankruptcy costs prevent this level of debt financing in practice.

b$.$

Instead of returning free cash flow to investors in the form of dividends or stock buybacks, managers may invest cash flows in projects that are not expected to yield adequate returns in order to create some growth.

c$.$

There is a clear target balance between the amount of debt and equity financing that aligns manager's interests with stockholders' interests.

d$.$

Managers' and stockholders' incentives are well aligned only when firms are $100\%$ equity financed $($zero debt financing$).$