Which of the Following Statements Is FALSE

question 41

Multiple Choice

Which of the following statements is FALSE?

• A)Aside from taxes,another important difference between debt and equity financing is that debt payments must be made to avoid bankruptcy,whereas firms have no similar obligation to pay dividends or realize capital gains.
• B)Increasing the level of debt increases the probability of bankruptcy.
• C)A firm receives a tax benefit only if it is paying taxes in the first place.
• D)To the extent that a firm has other tax shields,its taxable earnings will be increased and it will rely more heavily on the interest tax shield.

---

Definitions:

Exercise Price

The price at which the holder of an option contract may buy (in the case of a call option) or sell (in the case of a put option) the underlying asset when the option is exercised.

Underlying Asset

The financial asset upon which derivative instruments, such as futures, options, or warrants, are based or derived from.

European Call Option

A financial contract that gives the buyer the right, but not the obligation, to buy an underlying asset at a set price on a specific expiration date, only exercisable at the end of its term.

Expiration Date

The specific date upon which an options or futures contract becomes void and the holder must execute or relinquish the contract.