All of the Following Statements Are Correct Except

question 10

Multiple Choice

All of the following statements are correct except:

• A)The tax deductibility of debt becomes less important to firms with large nondebt tax shields such as foreign tax credits granted by the U.S.government to firms that pay taxes to foreign governments.
• B)As the debt/total asset ratio rises, or as earnings become more volatile, the firm will face higher borrowing costs, driven upward by bond investors requiring higher yields to compensate for additional risk.
• C)The static tradeoff hypothesis states that firms will balance the advantages of debt (its lower cost and tax-deductibility of interest) with its disadvantages (greater possibility of bankruptcy and the value of explicit and implicit bankruptcy costs).
• D)Agency costs reduce the optimal level of debt financing for a firm below the level that would be appropriate if agency costs were zero.
• E)All of the above statements are correct.

---

Definitions:

Lower Wages

The act of paying workers less than the average or expected amount for their labor.

South America

A continent located in the Western Hemisphere, mostly in the Southern Hemisphere, comprising twelve countries and known for its diverse landscapes and cultures.

Qualified Engineers

Individuals who have met the education, experience, and examination requirements to perform engineering tasks and services.