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:

Indemnity

A contractual obligation by one party to compensate the loss incurred by the other party due to the acts of the indemnitor or other specified individuals.

Parol Evidence Rule

A legal principle stating that oral evidence cannot be used to contradict, modify, or add to the terms of a written contract.

Verbal Agreement

An arrangement or contract that is made through spoken word rather than written documentation, but can still be legally binding.

Specific Performance

A legal remedy requiring a party to fulfill their obligations under a contract, rather than paying damages.