Which of the Following Statements Is False

question 91

Multiple Choice

Which of the following statements is false?

• A) Real estate firms are likely to have low costs of financial distress, as much of their value derives from assets that can be sold relatively easily.
• B) For low levels of debt, the risk of default remains low and the main effect of an increase in leverage is an increase in the interest tax shield, which has present value τ*D, where τ* is the effective tax advantage of debt.
• C) Firms whose value and cash flows are very volatile (for example, semiconductor firms) must have much higher levels of debt to avoid a significant risk of default.
• D) The probability of financial distress depends on the likelihood that a firm will be unable to meet its debt commitments and therefore default.

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Definitions:

Express Warranty

An express warranty is a seller's promise or guarantee that a product will meet a certain quality or functionality standard.

Value or Worth

The importance, usefulness, or monetary valuation of something, often subject to change based on market demand or condition.

Statement About

A declaration or account made about a specific subject, detailing facts or opinions.

Implied Warranty

A legal term for the assumption that a sold product will fulfill its intended purpose.