Question

Please answer ASAP: Issuing debt instead of new equity in a closely held firm is most likely to ...

cause the owner-manager to work less hard and shirk her duties as she has less capital at risk.

cause the owner-manager to consume more perquisites because the cost is passed to the debtholders.

cause both more shirking and perquisite consumption since the government provides a tax shield on debt.

cause agency costs to fall as the owner-manager does not need to worry about other shareholders.

cause the owner-manager to reduce shirking and perquisite consumption as the excess cash flow must be used to meet debt payments.

Answer 1