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:

Long-Term Assets

Long-term assets are resources owned by a company projected to provide economic value for more than one fiscal year, such as real estate, machinery, and patents.

Interest Rates

The cost of borrowing money or the return on investment for savings, playing a central role in monetary policy and financial decision-making.

Money Demand Curve

A graphical representation showing the relationship between the quantity of money people want to hold and the interest rate, typically depicted as downward sloping.

Interest Rate

The percentage at which interest is charged or paid for the use of money over a period.