Which of the Following Statements Is FALSE

question 49

Multiple Choice

Which of the following statements is FALSE?

• A)When a firm faces financial distress,shareholders have an incentive not to invest and to withdraw money from the firm if possible.
• B)Because top managers often hold shares in the firm and are hired and retained with the approval of the board of directors,which itself is elected by shareholders,managers will generally make decisions that increase the value of the firm's equity.
• C)An over-investment problem occurs when shareholders have an incentive to invest in risky positive-NPV projects.
• D)A negative-NPV project destroys value for the firm overall.

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Definitions:

Compromise Dividend Policy

A dividend policy that seeks a balance between retaining earnings for company growth and paying dividends to shareholders, accommodating various investors' preferences.

Net Present Value

A financial metric that calculates the present value of all future cash flows (positive and negative) expected from a project or investment, discounted back to their present value.

Debt-Equity Ratio

A measure showing the relative contributions of debt and shareholders' equity in a company’s asset financing.