Which of the Following Statements Regarding Leverage Is False

question 58

Multiple Choice

Which of the following statements regarding leverage is false?

• A) The ultimate effect of leverage depends on the firm's EBIT.
• B) If things go poorly for the firm, increased leverage provides greater returns to shareholders (as measured by ROE and EPS).
• C) As a firm levers up, shareholders are exposed to greater risk.
• D) The benefits of leverage will not be as great in a firm with substantial accumulated losses or other types of tax shields compared to a firm without many tax shields.
• E) Beyond a certain point, the costs of financial distress outweigh the benefits of leverage.

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