The shareholders and managers of Millennial Cabin, Inc. are currently experiencing some conflicts of interest between them. As such, the firm is undergoing some kind of ________________.

Multiple Choice

• legal liability

• articles of incorporation

• bylaws

• corporate breakdown

• agency problem

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The higher the degree of financial leverage employed by a firm, the:

I. lower the amount of debt incurred.

II. lower the balance in accounts payable.

III. more debt a firm has per dollar of total assets.

IV. higher the number of outstanding shares of stock.

V. higher the probability that the firm will encounter financial distress.

Multiple Choice

• II only

• I, II, III, IV, and V

• I only

• III and V only

• I and III only

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Which of the following statements concerning interest rates is/are correct?

I. Savers would prefer monthly compounding over daily compounding.

II. The effective annual rate is always equal to the annual percentage rate.

III. Borrowers would prefer monthly compounding over daily compounding.

IV. The effective annual rate increases as the number of compounding periods per year increases.

V. For any positive rate of interest, the effective annual rate will never exceed the annual percentage rate.