Which of the Following Statements About Asset Substitution Is Incorrect

question 6

Multiple Choice

Which of the following statements about asset substitution is incorrect:

• A) Managers have incentives to use debt finance 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) Asset substitution increased the risk borne by lenders.

---

Definitions:

Role Strain

Conflicts that someone feels within a role.

Role Conflict

Role conflict occurs when there are incompatible demands placed upon a person relating to their job, family, or other social roles, causing stress and difficulty in fulfilling these roles adequately.

Disciplining Method

Techniques and strategies used by parents or guardians to guide, educate, and correct a child's behavior.

Spanking

The act of slapping, especially on the buttocks, as a form of punishment.