Which of the Following Statements Is False

question 27

Multiple Choice

Which of the following statements is false?

• A) Debt holders are not foolish-they recognize that when the firm defaults, they will not be able to get the full value of the assets. As a result, they will pay less for the debt initially.
• B) The costs of financial distress represent an important departure from Modigliani and Miller's assumption of perfect capital markets.
• C) Levered firms risk incurring financial distress costs that reduce the cash flows available to investors.
• D) When securities are fairly priced, the original shareholders of a firm pay the future value of the costs associated with bankruptcy and financial distress.

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Definitions:

Binding Labor Agreement

A legally enforceable contract between a labor union and an employer that specifies the terms of employment and worker rights.

Formal Grievance Systems

Institutionalized processes allowing employees to file complaints or disputes for formal review and resolution.

National Labor Relations Board

An independent U.S. federal agency that enforces labor law in relation to collective bargaining and unfair labor practices.

American Federation of Labor

A national federation of labor unions in the United States, founded in 1886, representing workers' interests in various industries.