One principal-agent conflict is that between a firm's creditors (as a principal) and its shareholders (as agent). For example, after issuing risky debt, stockholders have an incentive to increase the riskiness of the firm's assets (e.g
, by changing operating strategy), which would tend to expropriate wealth from creditors to stockholders. Which of the assumptions of an ideal capital market is violated in this example?
a. Capital Markets are frictionless
b. Homogeneous expectations
c. Atomistic competition
d. The firm has a fixed investment program
e. Once chosen, the firm's financing is fixed
D
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A central business district is characterized by a concentration of _____
a. convenience stores b. parking facilities c. suburban housing d. cultural and entertainment facilities
Lauren, a customer service technician at the Jaguar dealer, listens to a customer rant about hearing wind vibrations in his Jaguar when he drives over 100 miles per hour on the highway. Lauren can show emotional leadership by,
A) informing the customer that he behaves like a lunatic on the highway. B) ranting even louder about the customer being a danger to society. C) laughing at the customer and ask him to imitate the sound of the wind vibration. D) remaining calm until the customer quiets down, and then begin to look at the problem.