Which of the Following Statements About Asset Substitution Is Incorrect

question 30

Multiple Choice

Which of the following statements about asset substitution is incorrect?

• A) Managers have incentives to use debts to invest in higher-risk assets.
• B) When managers invest in higher-risk projects, lenders would share higher returns earned from the projects.
• C) The problem of asset substitution can be reduced by having a debt covenant that restricts investment opportunities of the entity.
• D) All of the options are correct.

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