Which of the Following Statements Is FALSE

question 79

Multiple Choice

Which of the following statements is FALSE?

• A)Once bonds are issued, equity holders have an incentive to increase dividends at the expense of debt holders.
• B)If the covenants are designed to reduce agency costs by restricting management's ability to take negative-NPV actions that exploit debt holders, then the reduction in the firm's borrowing cost can more than outweigh the cost of the loss of flexibility associated with covenants.
• C)Covenants may restrict the level of further indebtedness and specify that the issuer must maintain a minimum amount of working capital.
• D)By including more covenants, issuers increase their costs of borrowing.

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Definitions:

Secondary Reinforcers

Stimuli that acquire their reinforcing properties through association with primary reinforcers and are used to modify behavior.

Biological Needs

Fundamental physical requirements necessary for human survival, including air, food, water, shelter, clothing, warmth, sex, and sleep.

Reinforcing

Strengthening a behavior by providing a consequence that is rewarding.

Primary Reinforcers

Innate reinforcing qualities, such as food or water, that satisfy biological needs.