Which one of the following statements is TRUE?
A. When lenders protect themselves from the risk of asset switching, the firm's WACC can increase.
B. An example of an agency cost is when the board of directors pays a dividend to shareholders.
C. An example of an agency cost is when an attorney hires an expert witness for a trial.
D. An example of asset switching is an option to exchange one piece of real estate for another.
E. Lenders can't legally prevent a firm from engaging in asset switching.
Answer: A
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