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:

Initial Cost

The initial expenditure involved in acquiring an asset or launching a project, not including operational or maintenance costs.

Equipment

Tools, machinery, and other durable assets used in the production of goods or services.

Maintenance Hangar

A facility dedicated to the maintenance, repair, and overhaul (MRO) of aircraft.

Working Capital

The difference between a company's current assets and current liabilities, indicating the short-term financial health of the company.