Which of the Following Statements Regarding Recapitalizations Is FALSE

question 43

Multiple Choice

Which of the following statements regarding recapitalizations is FALSE?

• A)With a recapitalization,even though leverage reduces the total value of equity,shareholders capture the benefits of the interest tax shield up front.
• B)The share price always rises after the completion of the recapitalization.
• C)Leveraged recaps were especially popular in the mid- to late-1980s,when many firms found that these transactions could reduce their tax payments.
• D)When a firm makes a significant change to its capital structure,the transaction is called a recapitalization.

---

Definitions:

Provincial Tax Rates

The percentage rate at which income, goods, services, and transactions are taxed by individual provinces or territories in Canada.

Net Capital Spending

Net Capital Spending is the total amount spent on acquiring or maintaining fixed assets minus any sales of fixed assets during a given period.

Depreciation

The process of allocating the cost of a tangible asset over its useful life, reflecting the decrease in value of the asset over time.

Used Equipment

Pre-owned machinery or technology that may be purchased for business operations at a lower cost compared to new items.