Let’s suppose there exists an information asymmetry between managers and financi

ID: 2736330 • Letter: L

Question

Let’s suppose there exists an information asymmetry between managers and financial markets. Choose WRONG statements:

a If a company has high level of financial leverage, its shareholders always prefer implementing less risky projects to ensure higher financial stability

b The level of financial leverage does not affect the shareholders’ choice of investment alternatives

c Despite the level of debt burden, the manager acting in shareholders’ interests, always undertakes only projects with positive NPV

d If a company does not have debt financing, a manager acting in shareholders’ interests always looks at the project’s NPV.

Explanation / Answer

The correct option should be d. If a company does not have debt financing, a manager acting in shareholders'interests always looks at the project's NPV.

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Let’s suppose there exists an information asymmetry between managers and financi

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