Which of the Following Statements Is False

question 6

Multiple Choice

Which of the following statements is false?

• A) An important consequence of leverage is the risk of bankruptcy.
• B) Whether default occurs depends on the cash flows, not on the relative values of the firm's assets and liabilities.
• C) Economic distress is a significant decline in the value of a firm's assets, whether or not it experiences financial distress due to leverage.
• D) Modigliani and Miller's results continue to hold in a perfect market even when debt is risky and the firm may default.

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Definitions:

Closed Economy

A financial structure that doesn't engage with external economies through trade, investment, or the movement of people.

Public Saving

The difference between the tax revenues and government spending of a country, representing the government's surplus or deficit.

National Saving

The total saving of an economy, consisting of both private and public saving.

Public Saving

The difference between government tax revenues and government expenditures, often used to assess a government's financial health.