Which of the Following Statements Is False

question 60

Multiple Choice

Which of the following statements is false?

• A) When a firm faces financial distress, creditors can gain by making sufficiently risky investments, even if they have negative NPV.
• B) When a firm has leverage, a conflict of interest exists if investment decisions have different consequences for the value of equity and the value of debt.
• C) In some circumstances, managers may take actions that benefit shareholders but harm the firm's creditors and lower the total value of the firm.
• D) Agency costs are costs that arise when there are conflicts of interest between stakeholders.

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Definitions:

Convertible Bonds

A type of bond that can be converted into a predetermined amount of the company's equity at certain times during its life, usually at the discretion of the bondholder.

Shareholders

Individuals or entities that own one or more shares of stock in a corporation, giving them partial ownership and certain rights within the company, such as voting on corporate matters.

Company Stock

Equity shares issued by a corporation representing ownership interest in the company.

Promoter

A person who begins the corporate creation and organization process.