Which of the Following Statements Is False

question 6

Multiple Choice

Which of the following statements is false?

• A) An important consequence of leverage is the risk of bankruptcy.
• B) Whether default occurs depends on the cash flows, not on the relative values of the firm's assets and liabilities.
• C) Economic distress is a significant decline in the value of a firm's assets, whether or not it experiences financial distress due to leverage.
• D) Modigliani and Miller's results continue to hold in a perfect market even when debt is risky and the firm may default.

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Definitions:

Learned Helplessness

A condition in which a person suffers from a sense of powerlessness, arising from a traumatic event or persistent failure to succeed, leading to diminished motivation and learning.

External Locus

The belief that one's successes or failures result from external factors beyond their control, as opposed to internal factors like effort and decision-making.

Fate

A predetermined course of events often considered to be beyond human control.

Sensation Seeking

A personality trait characterized by the search for experiences and feelings that are varied, novel, complex, and intense, and by the readiness to take physical, social, legal, and financial risks for the sake of such experiences.