a venture capital firm protects its equity investment from moral hazard through whic 638896

1) A venture capital firm protects its equity investment from moral hazard through which of the following means?

A) It places people on the board of directors to better monitor the borrowing firm”s activities.

B) It writes contracts that prohibit the sale of an equity investment to the venture capital firm.

C) It prohibits the borrowing firm from replacing its management.

D) It requires a 50% stake in the company.

2) Equity contracts account for a small fraction of external funds raised by American businesses because

A) costly state verification makes the equity contract less desirable than the debt contract.

B) of the reduced scope for moral hazard problems under equity contracts, as compared to debt contracts.

C) equity contracts do not permit borrowing firms to raise additional funds by issuing debt.

D) there is no moral hazard problem when using a debt contract.

3) Debt contracts

A) are agreements by the borrowers to pay the lenders fixed dollar amounts at periodic intervals.

B) have a higher cost of state verification than equity contracts.

C) are used less frequently to raise capital than are equity contracts.

D) never result in a loss for the lender.

4) Since they require less monitoring of firms, ________ contracts are used more frequently than ________ contracts to raise capital.

A) debt; equity

B) equity; debt

C) debt; loan

D) equity; stock