Which of the Following Statements Is FALSE

question 38

Multiple Choice

Which of the following statements is FALSE?

• A)Creditors often place restrictions on the actions that the firm can take.Such restrictions are referred to as debt covenants.
• B)Covenants are often designed to prevent management from exploiting debt holders,so they may help to reduce agency costs.
• C)Agency costs are smallest for long-term debt.
• D)Covenants may limit the firm's ability to pay large dividends or the types of investments that the firm can make.

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Definitions:

Favored Customers

Customers who receive preferential treatment from sellers, often through better prices, terms, or product availability.

Misallocation

The inefficient distribution of resources in an economy.

Rationing Coupons

Documents or electronic vouchers used to limit the consumption of resources or goods, particularly during shortages.

Market Price

The market rate at which you can currently buy or sell a service or asset in a specified market.