Which of the Following Statements Is FALSE

question 52

Multiple Choice

Which of the following statements is FALSE?

• A)A biotech firm might be developing drugs with tremendous potential,but it has yet to receive any revenue from these drugs.Such a firm will not have taxable earnings.In that case,a tax-optimal capital structure does not include debt.
• B)No corporate tax benefit arises from incurring interest payments in excess of EBIT.
• C)The optimal level of leverage from a tax saving perspective is the level such that interest equals EBIT.
• D)In general,as a firm's interest expense approaches its expected taxable earnings,the marginal tax advantage of debt increases,limiting the amount of equity the firm should use.

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Definitions:

Series Components

Electrical components connected in a circuit in such a manner that there is only one path for current flow, causing the current through each component to be the same.

Parallel Components

Elements in an electrical circuit are said to be in parallel if they are connected across the same two points in the circuit, allowing electric current to split and flow through multiple paths.

Current Flow

The flow of electric charge carriers like electrons, through a conductor or electrical circuit.

Applied Voltage

The voltage that is supplied or exerted across a component or circuit.