Which of the Following Statements Is FALSE

question 66

Multiple Choice

Which of the following statements is FALSE?

• A)A biotech firm might be developing drugs with tremendous potential,but it has yet to receive any revenue from these drugs.Such a firm will not have taxable earnings.In that case,a tax-optimal capital structure does not include debt.
• B)No corporate tax benefit arises from incurring interest payments that regularly exceed EBIT.
• C)The optimal level of leverage from a tax saving perspective is the level such that interest equals EBIT.
• D)In general,as a firm's interest expense approaches its expected taxable earnings,the marginal tax advantage of debt increases,limiting the amount of equity the firm should use.

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Definitions:

Rising Prices

An economic situation characterized by a general increase in the prices of goods and services.

Dollar-Value LIFO

An inventory valuation method that uses the dollar value of inventory rather than the physical count of goods, adjusting for inflation.

Current Cost

The cost to replace an asset or settle a liability at the current market rate, as opposed to its historical purchase price or book value.

Average Cost

A calculation that divides the total cost of goods available for sale by the total number of units available for sale, determining the cost per unit.