Which of the Following Statements Is False

question 97

Multiple Choice

Which of the following statements is false?

• A) The optimal level of debt, D*, balances the costs and benefits of leverage.
• B) As the debt level increases, the firm benefits from the interest tax shield (which has present value τ*D).
• C) If the debt level is too large, firm value is reduced due to the loss of tax benefits (when interest exceeds EBIT), financial distress costs, and the agency costs of leverage.
• D) As the debt level increases, the firm faces worse incentives for management, which increase wasteful investment and perks.

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Definitions:

Traditional IRA

A type of retirement account that offers tax-deferred growth, with taxes being paid only upon withdrawal in retirement.

Distributions

Money paid out to shareholders from a corporation's earnings or a fund's assets.

IRA Balance

Refers to the total amount of money that is currently saved within an Individual Retirement Account, a tax-advantaged retirement savings account.

401(k) Plan

A retirement savings plan sponsored by an employer that allows workers to save and invest a portion of their paycheck before taxes are taken out.