Which of the Following Statements Is False

question 38

Multiple Choice

Which of the following statements is false?

• A) Aside from taxes, another important difference between debt and equity financing is that debt payments must be made to avoid bankruptcy, whereas firms have no similar obligation to pay dividends or realize capital gains.
• B) Increasing the level of debt increases the probability of bankruptcy.
• C) A firm receives a tax benefit only if it is paying taxes in the first place.
• D) To the extent that a firm has other tax shields, its taxable earnings will be increased and it will rely more heavily on the interest tax shield.

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Definitions:

Interaction Variables

Variables that modify the relationship between other variables in the context of statistical analysis, showing how the effect of one variable depends on the level of another variable.

Dependent Variable

A variable in research that is expected to change as a result of manipulations in the independent variable.

Independent Variable

A variable that is manipulated in an experiment to determine its effect on the dependent variable.

Cause-and-Effect Relationship

A connection between two events where one (the cause) directly results in the occurrence of the other (the effect).