Which of the Following Statements Is FALSE

question 63

Multiple Choice

Which of the following statements is FALSE?

• A)In general,the gain to investors from the tax deductibility of interest payments is referred to as the interest tax shield.
• B)The interest tax shield is the additional amount that a firm would have paid in taxes if it did not have leverage.
• C)Because Corporations pay taxes on their profits after interest payments are deducted,interest expenses reduce the amount of corporate tax firms must pay.
• D)As Modigliani and Miller made clear in their original work,capital structure matters in perfect capital markets.Thus,if capital structure does not matter,then it must stem from a market imperfection.

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Definitions:

Marginal Product

The additional output gained from employing one more unit of a particular input while keeping other inputs constant.

Marginal Revenue Product

The supplementary earnings derived from utilizing an extra unit of a resource, like labor or capital.

Variable Resource

Inputs or resources used in production that change in amount with the level of output, such as labor or raw materials.

Unskilled Labor

Labor that requires no specialized skills, education, or training.