Which of the Following Statements Is FALSE

question 17

Multiple Choice

Which of the following statements is FALSE?

• A)The optimal level of debt D* balances the costs and benefits of leverage.
• B)As the debt level increases,the firm benefits from the interest tax shield (which has present value τ*D).
• C)If the debt level is too large,firm value is reduced due to the loss of tax benefits (when interest exceeds EBIT),financial distress costs,and the agency costs of leverage.
• D)As the debt level increases,the firm faces decreased incentives for management,which increase wasteful investment and perks.

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Definitions:

Utilities Expense

Costs incurred by a business for basic utilities such as water, electricity, gas, and sewage services.

Services Provided

Services provided refer to the performance of non-tangible tasks or activities by a company for its clients or customers, as opposed to selling physical products.

Customer on Account

A term used to describe a sale made on credit, where the customer agrees to pay the amount owed at a later date.

Journal Entries

Records of financial transactions in the accounting system of a business, indicating the accounts and amounts to be debited and credited.