Which of the Following Statements Is False

question 88

Multiple Choice

Which of the following statements is false?

• A) Depreciation expenses have a positive impact on free cash flow.
• B) Free Cash Flow = (Revenues - Costs - Depreciation) × (1 - τ_c) - Capital Expenditures - ΔNWC + τ_c × Depreciation.
• C) The firm cannot use its earnings to buy goods, pay employees, fund new investments, or pay dividends to shareholders.
• D) The depreciation tax shield is the tax savings that result from the ability to deduct depreciation.

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Definitions:

Financial Distress Costs

Expenses that a company faces when it is having difficulty meeting its financial obligations, which can include legal, restructuring, and operational costs.

Debt-equity Ratio

The ratio highlighting the financial mix of equity and debt used in the acquisition of company assets.

Break-even Level

The juncture where overall expenses match the total income, leading to neither a net profit nor a loss.

M&M Theory

Modigliani and Miller's theory positing that in an ideal market, a company's value is unaffected by how it is financed, whether through debt or equity.