Which of the Following Statements Is FALSE

question 108

Multiple Choice

Which of the following statements is FALSE?

• A)When a firm faces financial distress,creditors can gain by making sufficiently risky investments,even if they have negative NPV.
• B)When a firm has leverage,a conflict of interest exists if investment decisions have different consequences for the value of equity and the value of debt.
• C)In some circumstances,managers may take actions that benefit shareholders but harm the firm's creditors and lower the total value of the firm.
• D)Agency costs are costs that arise when there are conflicts of interest between stakeholders.

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Definitions:

Special Precautions

Additional safety measures or steps taken in specific situations to prevent harm or mitigate risk beyond what is normally required.

Direct Liability

Direct liability refers to a legal responsibility that arises from one's own actions or failures to act, leading directly to harm or damage.

Respondeat Superior

A judicial principle that assigns legal liability to an employer or principal for the wrongful actions performed by an employee or agent, providing these actions happened in the course of their employment or representation.

Vicarious Liability

A legal principle where one party is held responsible for the actions or omissions of another, such as an employer for the actions of an employee.