All else being equal, increases in firms' net worth result in
A)increases adverse selection problems.
B)increases moral hazard problems.
C)increases in capital investment spending.
D)a greater gap between the cost of internal and external financing.

Question

Quizplus · Accepted Answer

Increases in firms' net worth allow them to fund more capital investment spending, as they have more resources available to them. This can lead to increased growth and profitability for the firm. Adverse selection and moral hazard problems are not directly related to net worth increases. The gap between the cost of internal and external financing may or may not change depending on other factors, so it is not a certain result of net worth increases.

All Else Being Equal, Increases in Firms' Net Worth Result