Which of the Following Statements Is FALSE

question 108

Multiple Choice

Which of the following statements is FALSE?

• A)When a firm faces financial distress,creditors can gain by making sufficiently risky investments,even if they have negative NPV.
• B)When a firm has leverage,a conflict of interest exists if investment decisions have different consequences for the value of equity and the value of debt.
• C)In some circumstances,managers may take actions that benefit shareholders but harm the firm's creditors and lower the total value of the firm.
• D)Agency costs are costs that arise when there are conflicts of interest between stakeholders.

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Definitions:

Stereotypes

Oversimplified generalizations about groups of people that may not accurately reflect reality.

Social-Psychological Process

A mechanism through which social interactions and structures influence individuals' thoughts, feelings, and behaviors.

Psychological Processes

The functions of the mind that encompass all aspects of perceiving, thinking, remembering, and understanding, which influence behavior.

Attribution Theory

A social psychology theory that explains how individuals infer the causes of their own and others' behavior, attributing it to either internal dispositions or external situations.