Which of the Following Statements Is FALSE

question 102

Multiple Choice

Which of the following statements is FALSE?

• A)The optimal level of debt D*,balances the costs and benefits of leverage.
• B)As the debt level increases,the firm benefits from the interest tax shield (which has present value τ*D).
• C)If the debt level is too large firm value is reduced due to the loss of tax benefits (when interest exceeds EBIT),financial distress costs,and the agency costs of leverage.
• D)As the debt level increases,the firm faces worse incentives for management,which increase wasteful investment and perks.

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Definitions:

Contract Action

A legal proceeding initiated to enforce the terms of a contract or to resolve disputes arising from a contract.

Apparent Authority

The appearance or assumption of authority based on the actions or statements of the principal, leading third parties to believe an agent has authority to act.

Actual Authority

A legal concept where a party is officially granted the power to act on behalf of another, particularly in a business setting.

Implied Authority

The power of an agent to act on behalf of a principal, assumed to be granted due to the nature of the relationship, without explicit consent.