Which of the Following Statements About Asset Substitution Is Incorrect

Multiple Choice

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.