Which of the Following Statements Is FALSE

question 100

Multiple Choice

Which of the following statements is FALSE?

• A)The presence of financial distress costs can explain why firms choose debt levels that are too high to fully exploit the interest tax shield.
• B)With higher costs of financial distress,it is optimal for the firm to choose lower leverage.
• C)Differences in the magnitude of financial distress costs and the volatility of cash flows can explain the differences in the use of leverage across industries.
• D)At the point D*,where V^L is maximized,the tax savings that result from increasing leverage are just offset by the increased probability of incurring the costs of financial distress.

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Definitions:

-ase

A suffix used in biochemistry to denote enzymes, which are proteins that catalyze biochemical reactions.

Crine

Pertaining to secretion, used in terms to describe glands or substances involved in the release of chemical substances in the body.

Gen

A prefix meaning "to become," often used in the formation of words related to genes, genetics, or generating something.

Ectasis

A medical term that describes the widening or enlargement of a hollow organ or structure.