Which of the Following Statements Is FALSE

question 100

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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Definitions:

Null Hypothesis

A hypothesis that states there is no significant difference or relationship between specified populations, any observed difference being due to sampling or experimental error.

Groups

In research, these refer to sets of subjects or items that have been separated based on characteristics or treatment conditions for analysis.

Chi-square Statistic

A statistical measure used in the chi-square test to evaluate the difference between observed and expected frequencies in one or more categories.

Expected Frequencies

The anticipated count of occurrences in each category of a variable, based on probability distributions or theoretical expectations.