Which of the Following Statements Is FALSE

question 20

Multiple Choice

Which of the following statements is FALSE?

• A)One disadvantage of using leverage is that it does not allow the original owners of the firm to maintain their equity stake.
• B)The separation of ownership and control creates the possibility of management entrenchment;facing little threat of being fired and replaced,managers are free to run the firm in their own best interests.
• C)Managers also have their own personal interests,which may differ from those of both equity holders and debt holders.
• D)The costs of reduced effort and excessive spending on perks are another form of agency cost.

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Definitions:

Stocks

Shares of ownership in a corporation or financial asset, which represent a claim on the company's earnings and assets.

Investment

Allocation of resources, such as time, money, or effort, in the expectation of generating a future benefit or return.

Composed

Implies being made up of multiple parts or elements; in the context of data, it may refer to a dataset composed of different types of information.

Portfolio Expected Return

The weighted average of the expected returns on the assets contained within an investment portfolio.