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.

---

Definitions:

Robaxin

A brand name for methocarbamol, a muscle relaxant used to treat skeletal muscle spasms and associated pain.

Norflex

A brand name for Orphenadrine, a medication used to relieve muscle pain and spasms, often prescribed in physical therapy.

Diuretic

A substance that promotes the increased production of urine, used to manage fluid balance and treat conditions like hypertension.

Renal Blood Flow

The amount of blood that passes through the kidneys per unit time, crucial for kidney function and filtration.