Which One of the Following Statements Is TRUE

question 42

Multiple Choice

Which one of the following statements is TRUE?

• A) when lenders protect themselves from the risk of asset switching, the borrowing firms will be limited in the projects they can profitably undertake.
• B) an agency relationship is when a principal works for an agent.
• C) in an agency relationship, the agent delegates authority to the principal.
• D) firms borrowing money have greater flexibility to use that money when there are debt covenants.
• E) when lenders protect themselves from the risk of asset switching by raising the interest rate, the firm's wacc can decrease.

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Definitions:

Profitability

A financial metric used to assess the ability of a business to generate earnings compared to its expenses over a specific period.

Current Ratio

A financial metric that measures a company's ability to pay off its short-term liabilities with its short-term assets.

Liabilities

Financial obligations or debts that a company owes to others.

Debt

Money owed by one party to another under the condition of repayment, often including interest charges.