Which of the Following Statements Is FALSE

question 2

Multiple Choice

Which of the following statements is FALSE?

• A)Leverage can reduce the degree of managerial entrenchment because managers are more likely to be fired when a firm faces financial distress.
• B)When a firm is highly levered,creditors themselves will closely monitor the actions of managers,providing an additional layer of management oversight.
• C)According to the empire building hypothesis,leverage increases firm value because it commits the firm to making future interest payments,thereby reducing excess cash flows and wasteful investment by managers.
• D)Managers of large firms tend to earn higher salaries,and they may also have more prestige and garner greater publicity than managers of small firms.As a result,managers may expand (or fail to shut down)unprofitable divisions,pay too much for acquisitions,make unnecessary capital expenditures,or hire unnecessary employees.

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Definitions:

U.S. Dollar

The official currency of the United States, widely used as a global reserve currency.

Industrial Market Countries

Nations with advanced economies primarily based on the manufacturing and marketing of goods and services, rather than agriculture.

Developing Countries

Nations with a lower living standard, undeveloped industrial base, and low Human Development Index relative to other countries.

Agricultural Products

Items derived from farming and agriculture, such as crops and livestock.