Which One of the Following Statements Is TRUE

question 17

Multiple Choice

Which one of the following statements is TRUE?

• A) When an owner/manager sells stock to an outsider, that outsider now bears some of the costs of the owner/manager's perquisite consumption.
• B) Lenders can't legally prevent a firm from engaging in asset switching.
• C) Firms borrowing money have greater flexibility to use that money when there are debt covenants.
• D) When lenders protect themselves from the risk of asset switching, the firm's WACC can decrease.
• E) A lender calling in a corporate loan and then lending the funds out to a safer borrower is an example of asset switching.

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Definitions:

Finished Goods

These are completed products that are ready for sale but have not yet been sold to customers.

Cost of Goods Sold

Costs directly incurred in the manufacture of goods a company sells.

Gross Profit

The difference between sales revenue and the cost of goods sold, before deducting overhead, payroll, taxes, and interest expenses.