Which of the following statements about asset substitution is incorrect?
A) Managers have incentives to use debts 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) All of the options are correct.
Correct Answer:
Verified
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