Which of the Following Statements Is False

question 57

Multiple Choice

Which of the following statements is false?

• A) A biotech firm might be developing drugs with tremendous potential, but it has yet to receive any revenue from these drugs. Such a firm will not have taxable earnings. In that case, a tax-optimal capital structure does not include debt.
• B) No corporate tax benefit arises from incurring interest payments that regularly exceed EBIT.
• C) The optimal level of leverage from a tax-saving perspective is a level where interest equals EBIT.
• D) In general, as a firm's interest expense approaches its expected taxable earnings, the marginal tax advantage of debt increases, limiting the amount of equity the firm should use.

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Definitions:

Lochner V. New York

A landmark U.S. Supreme Court case in 1905 that struck down a New York law setting limits on working hours, marking a significant moment in the relationship between labor laws and governmental regulation.

Fourteenth Amendment

An amendment to the U.S. Constitution, adopted in 1868, granting citizenship to all persons born or naturalized in the United States and guaranteeing all citizens equal protection of the laws.

Government Interference

Actions by government bodies that affect the operations of businesses, organizations, or individual freedoms, often viewed negatively by those who advocate for minimal governmental involvement.

Charles Beard

An influential American historian who proposed that the Constitution was designed to protect the economic interests of its framers.