Which of the Following Statements Is False

question 71

Multiple Choice

Which of the following statements is false?

• A) The presence of financial distress costs can explain why firms choose debt levels that are too high to fully exploit the interest tax shield.
• B) With higher costs of financial distress, it is optimal for the firm to choose lower leverage.
• C) Differences in the magnitude of financial distress costs and the volatility of cash flows can explain the differences in the use of leverage across industries.
• D) At the point D*, where V^L is maximized, the tax savings that result from increasing leverage are just offset by the increased probability of incurring the costs of financial distress.

---

Definitions:

Plant Communities

Groups of plants that live together in a specific habitat and interact with each other, forming a sort of ecological community.

Endosymbiont Theory

The theory that explains the origin of organelles like mitochondria and chloroplasts in eukaryotic cells, suggesting they were once independent prokaryotic organisms.

Mutualistic Relationships

Ecological interactions where both species involved benefit and often depend on each other for survival.

Prokaryotes

Single-celled organisms without a distinct nucleus or specialized organelles, including bacteria and archaea.