Which of the Following Statements Is False

question 17

Multiple Choice

Which of the following statements is false?

• A) One disadvantage of using leverage is that it does not allow the original owners of the firm to maintain their equity stake.
• B) The separation of ownership and control creates the possibility of management entrenchment; facing little threat of being fired and replaced, managers are free to run the firm in their own best interests.
• C) Managers also have their own personal interests, which may differ from those of both equity holders and debt holders.
• D) The costs of reduced effort and excessive spending on perks are another form of agency cost.

---

Definitions:

Individual Ownership

Pertains to the legal rights of a single individual to possess, use, and dispose of property or assets.

Taxed

Imposition of financial charges or other levies upon a taxpayer (an individual or legal entity) by a governmental organization in order to fund public expenditures.

Capitalist Economy

An economic system where trade, industry, and the means of production are largely or entirely controlled by private owners for profit.

Economic Infrastructure

The basic physical and organizational structures needed for the operation of a society or economy, like transportation, communication, and utilities.