Which of the Following Statements Is False

question 84

Multiple Choice

Which of the following statements is false?

• A) In general, the gain to investors from the tax deductibility of interest payments is referred to as the interest tax shield.
• B) The interest tax shield is the additional amount that a firm would have paid in taxes if it did not have leverage.
• C) Because Corporations pay taxes on their profits after interest payments are deducted, interest expenses reduce the amount of corporate tax firms must pay.
• D) As Modigliani and Miller made clear in their original work, capital structure matters in perfect capital markets. Thus, if capital structure does not matter, then it must stem from a market imperfection.

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Definitions:

Marginal Product

The additional output resulting from the use of one more unit of a production factor, holding other factors constant.

Factor X

An unspecified or unknown factor that can influence outcomes in an economic model or analysis.

Production Function

A mathematical model that relates the amount of output produced to the quantities of various inputs or factors of production.

Isoquant

A curve that represents all combinations of inputs that produce the same level of output in production theory.