Which of the Following Statements Is False

question 16

Multiple Choice

Which of the following statements is false?

• A) Once investors know the recap will occur, the share price will rise immediately to a level that reflects the value of the interest tax shield that the firm will receive from its recapitalization.
• B) When securities are fairly priced, the original shareholders of a firm capture the full benefit of the interest tax shield from an increase in leverage.
• C) In the presence of corporate taxes, we do not include the interest tax shield as one of the firm's assets on its market value balance sheet.
• D) We can analyze the recapitalization using the market value balance sheet; it states that the total market value of a firm's securities must equal the total market value of the firm's assets.

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Definitions:

Synovial Joints

Joints encased in a fluid-filled capsule, allowing for wide range of motion and flexibility, such as knees and elbows.

Ligaments

Tough, fibrous tissues that connect bones to other bones at joints.

Cartilage

A flexible, connective tissue found in areas such as joints, ribs, and ears, providing support and structure.

Synovial Fluid

A viscous, non-Newtonian fluid found in the cavities of synovial joints, serving as a lubricant to reduce friction between the articular cartilages during movement.