Which of the Following Statements Is FALSE

question 87

Multiple Choice

Which of the following statements is FALSE?

• A)The agency costs of debt can arise only if there is no chance the firm will default and impose losses on its debt holders.
• B)Agency costs represent another cost of increasing the firm's leverage that will affect the firm's optimal capital structure choice.
• C)An under-investment problem occurs when shareholders choose to not invest in a positive-NPV project.
• D)When a firm faces financial distress,it may choose not to finance new,positive-NPV projects.

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Definitions:

Retrenchment

A strategy used by organizations to reduce their scale or scope in response to financial pressures, often involving cost-cutting measures and reductions in workforce.

Organizational

Relating to the structure or functioning of an organization or the collective group organized for a particular purpose.

Operational

Pertaining to the daily activities and functions necessary for an organization or system to run efficiently and effectively.

State of Crisis

A situation or period in which an organization or community faces significant challenges or threats that require immediate and effective response.