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:

Credibility

The quality of being trusted and believed in, often earned through consistency, reliability, and integrity in one's actions or information.

Professionalism

The conduct, aims, or qualities that characterize or mark a profession or professional person; it often includes expertise, ethics, and dedication.

Passive Sentence

A sentence construction where the subject of the sentence is acted upon by the verb, often obscuring who is performing the action.

Complex Sentence

A sentence that contains an independent clause and at least one dependent clause, conveying more detailed or nuanced information.