Which One of the Following Statements Is TRUE

question 25

Multiple Choice

Which one of the following statements is TRUE?

• A) lenders will protect themselves from the risk of asset switching by writing debt covenants into loans.
• B) lenders can't legally prevent a firm from engaging in asset switching.
• C) firms borrowing money have greater flexibility to use that money when there are debt covenants.
• D) when lenders protect themselves from the risk of asset switching by charging a higher interest rate, the firm's wacc can decrease.
• E) a lender calling in a corporate loan and then lending the funds out to a safer borrower is an example of asset switching.

---

Definitions:

Export

The sale of goods or services from one country to another.

Trucks

Large heavy-duty vehicles designed for transporting goods and materials over long distances.

Cars

Motor vehicles with four wheels designed primarily for passenger transportation on roads.

Opportunity Cost

The price paid for not selecting the alternative that is second-best when a choice is made.