Which One of the Following Statements Is TRUE

question 12

Multiple Choice

Which one of the following statements is TRUE?

• A) when lenders protect themselves from the risk of asset switching, the firm's wacc can increase.
• B) an example of an agency cost is when the board of directors pays a dividend to shareholders.
• C) an example of an agency cost is when an attorney hires an expert witness for a trial.
• D) an example of asset switching is an option to exchange one piece of real estate for another.
• E) lenders can't legally prevent a firm from engaging in asset switching.

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Definitions:

Milgram

Refers to a series of social psychology experiments conducted by Stanley Milgram, which measured the willingness of study participants to obey an authority figure who instructed them to perform acts conflicting with their personal conscience.

Obedience

The act of following orders or directions from someone in authority, or adhering to a set of rules or laws.

Research

The systematic investigation into and study of materials, sources, etc., in order to establish facts and reach new conclusions.

Larger Group

Refers to a social or organizational entity that comprises a greater number of individuals compared to a smaller assembly or subgroup.