Which of the Following Statements Is False

question 97

Multiple Choice

Which of the following statements is false?

• A) The optimal level of debt, D*, balances the costs and benefits of leverage.
• B) As the debt level increases, the firm benefits from the interest tax shield (which has present value τ*D).
• C) If the debt level is too large, firm value is reduced due to the loss of tax benefits (when interest exceeds EBIT), financial distress costs, and the agency costs of leverage.
• D) As the debt level increases, the firm faces worse incentives for management, which increase wasteful investment and perks.

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Definitions:

Statutes

Written laws enacted by legislatures at the federal, state, or local level.

Federal Statute

A law enacted by the national government of a country that applies throughout the country and supersedes state laws in areas of federal jurisdiction.

Equitable Principle

Legal maxims or foundational principles aimed at achieving fairness in judicial decisions.

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The fundamental governing document of a U.S. state, outlining the structure, functions, and powers of state government and securing rights to its citizens.