Which one of the following actions by a financial manager is most apt to create an agency problem?
a. refusing to borrow money when doing so will create losses for the firm
b. refusing to lower selling prices if doing so will reduce the net profits
c. refusing to expand the company if doing so will lower the value of the equity
d. agreeing to pay bonuses based on the market value of the company stock rather than on the firm's level of sales
e. increasing current profits when doing so lowers the value of the firm's equity
Answer: E
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