Which of the Following Statements Is FALSE

question 79

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.

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