Which of the Following Statements Is False

question 97

Multiple Choice

Which of the following statements is false?

• A) The optimal level of debt, D*, balances the costs and benefits of leverage.
• B) As the debt level increases, the firm benefits from the interest tax shield (which has present value τ*D).
• C) If the debt level is too large, firm value is reduced due to the loss of tax benefits (when interest exceeds EBIT), financial distress costs, and the agency costs of leverage.
• D) As the debt level increases, the firm faces worse incentives for management, which increase wasteful investment and perks.

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Definitions:

Imitation

The action of using someone or something as a model and attempting to replicate their behavior or actions.

Accommodation

In psychology, a cognitive process that adjusts mental schemes to incorporate new information; in eyesight, the process by which the eye's lens changes shape to focus on objects at various distances.

Mirror Neurons

A type of brain cell that fires both when an individual acts and when the individual observes the same action performed by another, playing a role in learning and empathy.

Activated

Made active or operational; also refers to the process of a molecule being converted into a reactive form.