Which of the Following Statements Is FALSE

question 38

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:

Reactive Power

The portion of electricity that oscillates between the source and load, stored and discharged by inductive or capacitive components, not converted to work.

Inductive Reactance

The opposition that an inductor presents to the change in current flow due to its stored magnetic energy, expressed in ohms.

Parallel Circuit

An electrical circuit in which components are connected across common points or junctions to provide multiple paths for current to flow.

Inductive Reactance

The opposition that an inductor presents to alternating current, due to the inductor's tendency to resist changes in current flow, measured in Ohms (Ω).