Which One of the Following Statements Is TRUE

question 35

Multiple Choice

Which one of the following statements is TRUE?

• A) An agency problem occurs when an owner/manager sells stock to an outsider but continues to consume perquisites.
• B) Firms borrowing money have greater flexibility to use that money when there are debt covenants.
• C) When lenders protect themselves from the risk of asset switching by raising the interest rate, the firm's WACC can decrease.
• D) A lender calling in a corporate loan and then lending the funds out to a safer borrower is an example of asset switching.
• E) A supplier substituting a lower-quality raw material without approval is an example of asset switching.

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Definitions:

Explosive Situation

A highly tense or volatile scenario that is likely to lead to conflict or break down in communication.

Harmony

A state of peaceful understanding and cooperation among individuals or groups, characterized by lack of conflict and mutual compatibility.

Short Run

In the short run, refers to a period of time during which certain conditions or variables are viewed as fixed, often used in economic contexts to analyze immediate effects.

Escalating Argument

A disagreement that intensifies in severity or intensity over time, often leading to heightened conflict.