Which of the Following Statements Is FALSE

question 57

Multiple Choice

Which of the following statements is FALSE?

• A)The tradeoff theory weighs the costs of debt that result from shielding cash flows from taxes against the benefits from the effects of financial distress associated with leverage.
• B)Leverage has costs as well as benefits.
• C)According to the tradeoff theory,the total value of a levered firm equals the value of the firm without leverage plus the present value of the tax savings from debt,less the present value of financial distress costs.
• D)Firms have an incentive to increase leverage to exploit the tax benefits of debt.But with too much debt,they are more likely to risk default and incur financial distress costs.