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RFD, a listed company, is considering making an investment in a risky new venture. RFD has a substantial cash surplus that will be used to acquire the necessary resources. It is unlikely that RFD would have been able to raise finance for this investment because the company is already highly geared.
Which of the following statements about stakeholders' conflicting interests are true?
Suggested Answer: A, B, C
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25 comments · newest first
JE
Jessenia
10 months ago
C makes sense, but can’t shareholders push back?
CA
Carey
10 months ago
B seems off, lenders usually have less risk than equity investors.
RE
Reita
10 months ago
Totally agree, directors take on total risk.
FE
Felicitas
10 months ago
A is true, shareholders face systematic risk.
LA
Latosha
11 months ago
E sounds too optimistic, diversification doesn’t always reduce risk.
IN
In
11 months ago
I’m not convinced that diversification always reduces risks for all stakeholders; it seems like it could depend on the specifics of the investment.
ER
Erin
11 months ago
I practiced a similar question about stakeholder interests, and I feel like neither shareholders nor lenders can really stop the directors from making risky decisions.
FR
Frederica
12 months ago
I think lenders might be at a greater risk than equity investors because they have fixed returns, but I need to double-check that.
FA
Farrah
12 months ago
I remember discussing how shareholders face systematic risk, but I'm not sure if directors face total risk in this context.
GE
Gertude
12 months ago
I think I've got it. The shareholders are exposed to systematic risk, the lenders are at greater risk, and the directors can likely make this investment without much oversight. Sounds like a good strategy to me.
IS
Isabella
1 year ago
The key here is to identify the different stakeholders and their incentives. The shareholders want to maximize returns, the lenders want to minimize risk, and the directors may have their own agenda. Gotta weigh all that.
DE
Deeanna
1 year ago
I'm a bit confused about the systematic risk versus total risk for the shareholders and directors. I'll need to re-read that part carefully.
GA
Gail
1 year ago
Okay, let's think this through step-by-step. The company has a cash surplus, so that's good. But it's a risky new venture, and the company is already highly geared, so the lenders are probably more exposed than the shareholders.
YO
Youlanda
1 year ago
This question seems straightforward, but I want to make sure I understand the key stakeholders and their conflicting interests before selecting the correct statements.
LI
Linwood
1 year ago
Yes, that's correct. The directors are exposed to total risk.
CA
Caprice
1 year ago
I agree with Nichelle. The lenders are in a more precarious position if this risky venture fails.
LE
Leonida
9 months ago
I doubt they have much power in this situation.
AN
An
10 months ago
True, equity investors might not feel it as much.
CO
Colton
10 months ago
I think the lenders really do face more risk.
SH
Shawna
11 months ago
But can shareholders really stop the directors?
NI
Nichelle
1 year ago
Option B seems the most likely. The lenders are taking on greater risk than the shareholders since the company is already highly geared.
LO
Loreen
1 year ago
Option B makes sense. Lenders usually have more at stake.
ST
Stanford
1 year ago
B) RFD's lenders are likely to suffer a greater risk than RFD's equity investors.
NI
Nieves
1 year ago
A) RFD's shareholders are exposed to the systematic risk from this project and the directors are exposed to total risk.
EL
Elza
1 year ago
I think the shareholders are exposed to systematic risk, right?