Which of the Following Statements Is False

question 1

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:

Crystallized Intelligence

The skill to utilize knowledge and experiences that have been learned.

Fluid Intelligence

The ability to reason and think flexibly, solve novel problems without relying extensively on prior knowledge.

Crystallized Intelligence

The power to use educational insights and past occurrences constructively.

Fluid Intelligence

The ability to think logically and solve problems in novel situations, independent of acquired knowledge.