Which of the Following Statements Is FALSE

question 36

Multiple Choice

Which of the following statements is FALSE?

• A)By including more covenants,issuers increase their costs of borrowing.
• B)Once bonds are issued,equity holders have an incentive to increase dividends at the expense of debt holders.
• C)Covenants may restrict the level of further indebtedness and specify that the issuer must maintain a minimum amount of working capital.
• D)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.

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Definitions:

Slip Splines

Used on a drive shaft (propeller shaft) stub and yoke assembly to permit variations in length caused by frame and suspension oscillations while transmitting drive torque.

Transmission Yoke

A mechanical component that connects the transmission output shaft to the driveshaft in a vehicle, allowing for the transfer of torque.

Driveshaft Speeds

The rotational speed of the driveshaft, which translates engine power to motion in a vehicle, varying with engine speed and gear selection.

Overdrive

Any drivetrain arrangement in which an output speed exceeds input speed. For instance, most transmissions have overdrive ratio options, meaning that transmission tailshaft speed exceeds engine crankshaft speed.