Issuing Debt Instead of New Equity in a Closely Held

Multiple Choice

Issuing debt instead of new equity in a closely held firm is most apt to cause:

A) the owner-manager to work less hard and shirk duties.
B) the owner-manager to consume more perquisites because the cost is passed to the debtholders.
C) both more shirking and perquisite consumption since the government provides a tax shield on debt.
D) agency costs to fall as owner-managers do not need to worry about other shareholders.
E) the owner-manager to reduce shirking and perquisite consumption.