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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