Which of the Following Statements Is False

question 7

Multiple Choice

Which of the following statements is false?

• A) Leverage can reduce the degree of managerial entrenchment because managers are more likely to be fired when a firm faces financial distress.
• B) When a firm is highly levered, creditors themselves will closely monitor the actions of managers, providing an additional layer of management oversight.
• C) According to the empire building hypothesis, leverage increases firm value because it commits the firm to making future interest payments, thereby reducing excess cash flows and wasteful investment by managers.
• D) Managers of large firms tend to earn higher salaries, and they may also have more prestige and garner greater publicity than managers of small firms. As a result, managers may expand (or fail to shut down) unprofitable divisions, pay too much for acquisitions, make unnecessary capital expenditures, or hire unnecessary employees.

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Definitions:

Financial Risks

Financial risks involve the potential loss of monetary investment or the possibility of not achieving the expected financial returns, affecting individuals or businesses.

Availability Heuristic

An intellectual quick route that depends on the readily recalled instances when contemplating a certain matter, notion, technique, or judgement.

Welfare Fraud

The act of illegally using or obtaining government assistance resources or funds by intentional misinformation or concealment of information.

Welfare Abuse

Misuse or exploitation of government assistance programs intended to help those in need.