Which of the Following Statements Is FALSE

question 36

Multiple Choice

Which of the following statements is FALSE?

• A)By including more covenants,issuers increase their costs of borrowing.
• B)Once bonds are issued,equity holders have an incentive to increase dividends at the expense of debt holders.
• C)Covenants may restrict the level of further indebtedness and specify that the issuer must maintain a minimum amount of working capital.
• D)If the covenants are designed to reduce agency costs by restricting management's ability to take negative NPV actions that exploit debt holders,then the reduction in the firm's borrowing cost can more than outweigh the cost of the loss of flexibility associated with covenants.

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Definitions:

Political Jurisdictions

Defined areas under the authority of certain governmental entities where specific laws, regulations, and powers are applied and enforced.

Urban Sprawl

The uncontrolled expansion of urban areas into the surrounding countryside, often characterized by low-density residential development, increased reliance on personal vehicles, and loss of natural habitats.

Low-Cost Gasoline

Gasoline that is available at a lower price, often due to government subsidies, regional availability, or lessened environmental regulations.

Government-Funded Highways

Roads and transport routes built and maintained by the government using public funds.