Which of the Following Statements Is False

question 6

Multiple Choice

Which of the following statements is false?

• A) An important consequence of leverage is the risk of bankruptcy.
• B) Whether default occurs depends on the cash flows, not on the relative values of the firm's assets and liabilities.
• C) Economic distress is a significant decline in the value of a firm's assets, whether or not it experiences financial distress due to leverage.
• D) Modigliani and Miller's results continue to hold in a perfect market even when debt is risky and the firm may default.

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