Which of the Following Statements Is False

question 38

Multiple Choice

Which of the following statements is false?

• A) Aside from taxes, another important difference between debt and equity financing is that debt payments must be made to avoid bankruptcy, whereas firms have no similar obligation to pay dividends or realize capital gains.
• B) Increasing the level of debt increases the probability of bankruptcy.
• C) A firm receives a tax benefit only if it is paying taxes in the first place.
• D) To the extent that a firm has other tax shields, its taxable earnings will be increased and it will rely more heavily on the interest tax shield.

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Definitions:

Production Possibility Frontier

A curve depicting all maximum output possibilities for two goods, given a set of inputs, representing the trade-off between the two goods.

Efficient Production

A production process that operates at the lowest possible cost and produces the highest possible output with given resources and technology.

Production Possibility Frontier

A curve depicting the maximum feasible amounts of two goods that can be produced with available resources and technology.

Economic Growth

A growth in an economy's ability to produce goods and services when comparing one time period to another.