Which of the Following Statements Is FALSE

question 24

Multiple Choice

Which of the following statements is FALSE?

• A)In general,the gain to investors from the tax deductibility of interest payments is referred to as the interest tax shield.
• B)The interest tax shield is the additional amount that a firm would have paid in taxes if it did not have leverage.
• C)Because corporations pay taxes on their profits after interest payments are deducted,interest expenses reduce the amount of corporate tax firms must pay.
• D)As Modigliani and Miller made clear in their original work,capital structure matters in perfect capital markets.Thus,if capital structure does not matter,then it must stem from a market imperfection.

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Definitions:

User Cost

The expense of utilizing a good or service, including opportunity costs and depreciation.

Slippery Slope

A logical fallacy that argues a relatively small first step leads to a chain of related events culminating in some significant effect, often used as a form of argument to caution against a course of action.

Extracting

The act of removing or obtaining a resource from a source, often used in the context of mining, harvesting, or obtaining information from data.

Barrel

A unit of measurement for oil and petroleum products, equivalent to 42 U.S. gallons.