Which of the Following Statements Is FALSE

question 56

Multiple Choice

Which of the following statements is FALSE?

• A)The most important insight regarding capital structure goes back to Modigliani and Miller: With perfect capital markets,a firm's security choice alters the risk of the firm's equity,but it does not change its value or the amount it can raise from outside investors.
• B)When agency costs are significant,short-term debt may be the most attractive form of external financing.
• C)Too much debt can motivate managers and equity holders to take excessive risks or over-invest in a firm.
• D)Of all the different possible imperfections that drive capital structure,the most clear-cut,and possibly the most significant,is taxes.

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Definitions:

Liquidity Ratio

A financial measure used to determine a company's ability to cover its short-term obligations with its most liquid assets.

Financial Obligations

Commitments to pay money to another party, including debts, salaries, taxes, and other liabilities.

Acid-Test Ratios

A financial metric that evaluates a company's ability to pay off its short-term liabilities with its quick assets, providing insight into its short-term financial health.

Liquidity Ratios

Financial metrics used to determine an organization's ability to pay off its short-term debts with its liquid assets.