Which of the Following Statements Is FALSE

question 61

Multiple Choice

Which of the following statements is FALSE?

• A)Once investors know the recap will occur,the share price will rise immediately to a level that reflects the value of the interest tax shield that the firm will receive from its recapitalization.
• B)When securities are fairly priced,the original shareholders of a firm capture the full benefit of the interest tax shield from an increase in leverage.
• C)In the presence of corporate taxes,we do not include the interest tax shield as one of the firm's assets on its market value balance sheet.
• D)We can analyze the recapitalization using the market value balance sheet;it states that the total market value of a firm's securities must equal the total market value of the firm's assets.

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Definitions:

Tax

Compulsory financial charges or some other type of levy imposed upon a taxpayer by a governmental organization in order to fund government spending and various public expenditures.

Price Ceiling

A Price Ceiling is a government-imposed limit on how high a price can be charged for a product, intended to protect consumers from exorbitant prices.

Supply Curve

A graph showing the relationship between the quantity of a good that producers are willing to sell and the price of the good.

Gasoline

A petroleum-derived flammable liquid primarily used as fuel in internal combustion engines.