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:

Total Assets

The sum of all resources owned by a company that are expected to provide future economic benefits.

Capital Account

A financial statement account that shows the equity ownership of shareholders or owners in a company.

Owners' Equity

The residual interest in the assets of an entity after deducting liabilities, representing the ownership's value in the company.

Capital Balances

The amount of capital that remains in a business after deductions, representing the residual interest in the firm's assets after liabilities have been deducted.