Which of the Following Statements Is FALSE

question 41

Multiple Choice

Which of the following statements is FALSE?

• A)Aside from taxes,another important difference between debt and equity financing is that debt payments must be made to avoid bankruptcy,whereas firms have no similar obligation to pay dividends or realize capital gains.
• B)Increasing the level of debt increases the probability of bankruptcy.
• C)A firm receives a tax benefit only if it is paying taxes in the first place.
• D)To the extent that a firm has other tax shields,its taxable earnings will be increased and it will rely more heavily on the interest tax shield.

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Definitions:

Supreme Law

This term commonly refers to the highest authority of law in a country, often the constitution, which supersedes all other laws.

State Constitutions

The fundamental governing documents of U.S. states, outlining the structure of the state government, its powers, and the rights of citizens within the state.

Precedents

Previous cases or legal decisions that can be used as a guide for deciding similar future cases.

Common Law

A legal system based on judicial decisions and precedent rather than statutory laws, originating in England and used in the United States.