Which of the Following Statements Is False

question 27

Multiple Choice

Which of the following statements is false?

• A) Debt holders are not foolish-they recognize that when the firm defaults, they will not be able to get the full value of the assets. As a result, they will pay less for the debt initially.
• B) The costs of financial distress represent an important departure from Modigliani and Miller's assumption of perfect capital markets.
• C) Levered firms risk incurring financial distress costs that reduce the cash flows available to investors.
• D) When securities are fairly priced, the original shareholders of a firm pay the future value of the costs associated with bankruptcy and financial distress.

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Definitions:

International Corporation

A domestic firm that uses its existing capabilities to move into overseas markets.

Cultural Environment

The communications, religion, values and ideologies, education, and social structure of a country

Social Organization

The structured arrangement of relationships and roles within a society, contributing to its orderly functioning and cultural practices.