Which of the Following Statements Is False

question 65

Multiple Choice

Which of the following statements is false?

• A) The tradeoff theory weighs the costs of debt that result from shielding cash flows from taxes against the benefits from the effects of financial distress associated with leverage.
• B) Leverage has costs as well as benefits.
• C) According to the tradeoff theory, the total value of a levered firm equals the value of the firm without leverage plus the present value of the tax savings from debt, less the present value of financial distress costs.
• D) Firms have an incentive to increase leverage to exploit the tax benefits of debt. But with too much debt, they are more likely to risk default and incur financial distress costs.

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Definitions:

Histrionic Personality Disorder

A personality disorder characterized by a pattern of excessive emotionality and attention-seeking behavior, including an intense need for approval and inappropriate seductiveness.

Antisocial Personality Disorder

A mental health condition characterized by a long-term pattern of manipulating, exploiting, or violating the rights of others.

Obsessive-Compulsive Personality Disorder

A personality disorder characterized by a pervasive pattern of preoccupation with orderliness, perfectionism, and control, without the presence of true obsessions and compulsions found in OCD.

Traits

Relatively stable patterns of thought, feeling, or behavior that characterize an individual.