Which of the Following Statements Is False

question 64

Multiple Choice

Which of the following statements is false?

• A) Even after adjusting for personal taxes, the value of an unlevered firm exceeds the value of a levered firm, and there is a tax advantage to using debt financing.
• B) In Modigliani and Miller's setting of perfect capital markets, firms could use any combination of debt and equity to finance their investments without changing the value of the firm.
• C) When firms raise new capital from investors, they do so primarily by issuing debt.
• D) In most years aggregate equity issues are negative, meaning that firms are reducing the amount of equity outstanding by buying shares.

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Definitions:

Effective

Producing a decided, decisive, or desired effect, often measuring the degree of success or efficiency of an action or item.

Car Salesman

A professional who sells new or used cars at a dealership and typically works on commission, aiming to meet or exceed sales quotas.

Dealer

An individual or company involved in the buying and selling of goods or securities in their own account.

Moral Hazard

The risk that one party to a contract will engage in behaviors that are undesirable to the other party, due to asymmetrical information or guaranteed protections.