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:

Net Working Capital

The difference between a company's current assets and current liabilities, indicating the company's short-term liquidity and financial health.

Net Present Value (NPV)

A financial metric that calculates the difference between the present value of cash inflows and outflows over a period of time, used to assess the profitability of an investment or project.

Net After-Tax Salvage Value

The estimated value of an asset at the end of its useful life, after subtracting any taxes associated with its disposal.

Operating Cash Flow

The cash generated from normal business operations, reflecting the company’s ability to generate sufficient revenue to cover its operational expenses.