Which of the Following Statements Is False

question 84

Multiple Choice

Which of the following statements is false?

• A) In general, the gain to investors from the tax deductibility of interest payments is referred to as the interest tax shield.
• B) The interest tax shield is the additional amount that a firm would have paid in taxes if it did not have leverage.
• C) Because Corporations pay taxes on their profits after interest payments are deducted, interest expenses reduce the amount of corporate tax firms must pay.
• D) As Modigliani and Miller made clear in their original work, capital structure matters in perfect capital markets. Thus, if capital structure does not matter, then it must stem from a market imperfection.

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Definitions:

Transaction Recorded

The act of documenting a business transaction in the company's accounting records.

Debit

A debit is an accounting entry that results in either an increase in assets or a decrease in liabilities on a company's balance sheet, or in the context of personal banking, a withdrawal from an account.

Credit

An accounting entry reflecting an increase in assets or decrease in liabilities on a company's balance sheet or an entry on the right side of an account.

Drawing

In accounting, refers to the withdrawal of cash or goods by the owner from a business for personal use.