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.

---

Definitions:

Optimistic Outlook

An attitude or mindset that tends to expect the most favorable outcomes or dwell on the most hopeful aspects of a situation.

Catastrophe

A sudden and widespread disaster or event causing great damage or suffering.

Depression

A psychological condition marked by a continuously low state of mind or diminished interest in activities, leading to considerable disruption in everyday functioning.

Physical Hardiness

The body's resilience and ability to withstand stress and physical challenges.