Which of the Following Statements Is False

question 71

Multiple Choice

Which of the following statements is false?

• A) The presence of financial distress costs can explain why firms choose debt levels that are too high to fully exploit the interest tax shield.
• B) With higher costs of financial distress, it is optimal for the firm to choose lower leverage.
• C) Differences in the magnitude of financial distress costs and the volatility of cash flows can explain the differences in the use of leverage across industries.
• D) At the point D*, where V^L is maximized, the tax savings that result from increasing leverage are just offset by the increased probability of incurring the costs of financial distress.

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