Final answer:
The statement about management's use of leverage based solely on risk preference is false. A firm's established position and wide availability of financial information allow external investors to provide capital even without knowing management personally, suggesting a broader consideration for leverage decisions.
Step-by-step explanation:
The statement "Management should tailor the use of leverage to meet its own risk-taking desires" is false. As a firm grows and begins to stabilize, the need for personal knowledge of managers by investors decreases due to the availability of financial information such as data on products, revenues, costs, and profits. This wider availability of information makes it easier for external investors, such as bondholders and shareholders, to provide financial capital, even without a personal connection to the firm's managers. Therefore, while management's risk preference is a factor, the use of leverage should also consider the broader investment community and responsible financial practices.