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.

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Definitions:

Indirect Method

A cash flow statement approach that adjusts net income for changes in non-cash working capital and non-operating adjustments to calculate cash flow from operations.

Operating Activities

Transactions and other events that are not investing or financing activities, contributing to the company's primary operations and cash flow.

Direct Method

A way to present the cash flow from operating activities by listing major operating cash receipts and payments, making it easier to understand than the indirect method.

Operating Activities

Day-to-day actions that relate directly to the production, sale, and delivery of a company’s products and services.