Question
At an AGM, shareholders vote on directors and key proposals. What protection does this primarily provide?
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Answer
Governance oversight through voting rights.
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Question
How does the upside potential of common equity differ from that of debt?
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Answer
Equity has residual upside; debt upside is capped at promised payments.
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Question
Why can heavy debt lead shareholders to reject a positive-NPV project?
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Answer
Because debtholders capture much of the benefit.
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Question
A lender wants protection against the firm taking actions that increase default risk. Which protection is most typical for debtholders?
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Answer
Debt covenants.
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