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