Which of the Following Statements Is False

question 4

Multiple Choice

Which of the following statements is false?

• A) The most important insight regarding capital structure goes back to Modigliani and Miller: with perfect capital markets, a firm's security choice alters the risk of the firm's equity, but it does not change its value or the amount it can raise from outside investors.
• B) When agency costs are significant, short-term debt may be the most attractive form of external financing.
• C) Too much debt can motivate managers and equity holders to take excessive risks or over-invest in a firm.
• D) Of all the different possible imperfections that drive capital structure, the most clear-cut, and possibly the most significant, is taxes.

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Definitions:

Void

A legal term indicating that an agreement or contract has no legal force or effect and is unenforceable.

Consideration

In legal terms, it refers to something of value that is exchanged between parties in a contract, making the agreement legally binding.

Breach of Contract

A situation where one or more parties involved in a contract fail to fulfil their legal obligations as outlined in that contract.

Writing Requirement

A legal stipulation that certain kinds of contracts must be in writing to be enforceable.