Which of the Following Statements Is False

question 40

Multiple Choice

Which of the following statements is false?

• A) When a firm fails to make a required payment to debt holders, it is in bankruptcy.
• B) With perfect capital markets, the risk of bankruptcy is not a disadvantage of debt - bankruptcy simply shifts the ownership of the firm from equity holders to debt holders without changing the total value available to all investors.
• C) Bankruptcy is a long and complicated process that imposes both direct and indirect costs on the firm and its investors that the assumption of perfect capital markets ignores.
• D) Bankruptcy is rarely simple and straightforward - equity holders don't just "hand the keys" to debt holders the moment the firm defaults on a debt payment.

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