Which of the Following Statements Is FALSE

question 4

Multiple Choice

Which of the following statements is FALSE?

• A)Calculating the precise present value of financial distress costs is a relatively straightforward process.
• B)Two key qualitative factors determine the present value of financial distress costs: (1)the probability of financial distress and (2)the magnitude of the costs after a firm is in distress.
• C)Technology firms are likely to incur high costs when they are in financial distress,due to the potential for loss of customers and key personnel,as well as a lack of tangible assets that can be easily liquidated.
• D)The magnitude of the financial distress costs will depend on the relative importance of the sources of these costs and is likely to vary by industry.

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Definitions:

FICA Taxes

Taxes imposed by the Federal Insurance Contributions Act, funding Social Security and Medicare programs, withheld from employees’ pay and matched by employers.

Medicare Taxes

Taxes collected from employees and employers to fund the Medicare program, which provides healthcare benefits to retirees.

State Income Taxes

Taxes imposed by individual states on the income generated by businesses and individuals within that state.

Liability Account

A type of accounting record that shows the obligations or debts a company owes to others.