Which of the Following Statements Is False

question 91

Multiple Choice

Which of the following statements is false?

• A) Real estate firms are likely to have low costs of financial distress, as much of their value derives from assets that can be sold relatively easily.
• B) For low levels of debt, the risk of default remains low and the main effect of an increase in leverage is an increase in the interest tax shield, which has present value τ*D, where τ* is the effective tax advantage of debt.
• C) Firms whose value and cash flows are very volatile (for example, semiconductor firms) must have much higher levels of debt to avoid a significant risk of default.
• D) The probability of financial distress depends on the likelihood that a firm will be unable to meet its debt commitments and therefore default.

Analyze the impact of calling bonds before their maturity and understand the related gain or loss.

Understand the concept of bond premiums and discounts, and their effects on bond's carrying value.

Record the accounting entries for bond issuance, interest payments, and bond retirement.

Understand the options available for retiring bonds before maturity.

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Definitions:

Specific Tax

A fixed amount taxed per unit of a good or service, as opposed to a percentage of the price.

Fraction

A numerical quantity that is not a whole number, represents a part of a whole, typically written with a numerator and a denominator separated by a slash.

Consumers

Individuals or households that use goods and services generated within the economy.

Import Quota

A restriction set by the government on the amount or cost of products allowed to be brought into a country from abroad.