Which of the following statements is CORRECT? Financing risky projects with addi

Question

Which of the following statements is CORRECT? Financing risky projects with additional debt can increase potential conflicts of interest A) between stockholders and bondholders. Bond covenants are an effective way to resolve conflicts between shareholders and B) managers. Because of their simplified organization, it is easier for proprietors and partnerships to raise C) large amounts of outside capital than it is for corporations. Corporations face few regulations and more favorable tax treatment than do proprietorships D) and partnerships. Managers who face the threat of hostile takeovers are less likely to pursue policies that E) maximize shareholder value compared to managers who do not face the threat of hostile

Explanation / Answer

Financing risky projects with additional debt can increase potential conflicts of interest between stockholders and bondholders.

The above should be the answer..

because higher debt means shareholders tend to loss ownership in the company.

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