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:

Federal Taxes

Taxes collected by the federal government, involving income tax, payroll taxes, and various other taxes.

State And Local Taxes

Various forms of taxation imposed by state, regional, and local governments, including income, sales, property, and other taxes.

Progressive

A tax system in which the tax rate increases as the taxable amount increases, often aimed at reducing income inequality.