Which of the Following Statements Is FALSE

question 2

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.

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Definitions:

German Car

Refers to automobiles manufactured in Germany, known for their engineering, performance, and quality.

Specialization

The process of focusing resources on the production of specific goods or services to increase efficiency and output.

Household Production

The creation of goods and services by individuals or families for their personal use, as opposed to goods and services produced for sale or exchange.

Balance of Payments

A record of all transactions made between entities in one country and the rest of the world over a defined period, including trade, investment, and financial transfers.