Which one of the following statements is TRUE?
A. When lenders protect themselves from the risk of asset switching, the borrowing firms will be limited in the projects they can profitably undertake.
B. An agency relationship is when a principal works for an agent.
C. In an agency relationship, the agent delegates authority to the principal.
D. Firms borrowing money have greater flexibility to use that money when there are debt covenants.
E. When lenders protect themselves from the risk of asset switching by raising the interest rate, the firm's WACC can decrease.
Answer: A
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