1. Which of the following actions are likely to reduce agency conflicts?
A Paying a large fixed salary to managers
B Placing restricting covenants in debt agreements
C Increasing the threat of corporate takeover
D All of the above statements are correct
Statements B and C are correct
2. Which of the following factors is likely to encourage a corporation to increase the proportion of debt in its capital structure?
A. An increase in the company’s degree of operating leverage
B The company’s assets become less liquid
C An increase in expected bankruptcy costs
D An increase in the corporate tax rates
3. Which of the follow is not a tool used to reduce the likelihood of a hostile takeover?
A Synchronized board elections
B Golden parachutes for board directors
C Poison pill
D Greenmail
4. According to Modigliani and Miller with no corporate taxations, …. Unlevered cost of equity is equal to?
A The levered cost of equity
B The cost of debt over tax
C The weighted-average cost of capital
D The risk-free rate
E None of the above