Which of the Following Statements Is FALSE

question 61

Multiple Choice

Which of the following statements is FALSE?

• A)Once investors know the recap will occur,the share price will rise immediately to a level that reflects the value of the interest tax shield that the firm will receive from its recapitalization.
• B)When securities are fairly priced,the original shareholders of a firm capture the full benefit of the interest tax shield from an increase in leverage.
• C)In the presence of corporate taxes,we do not include the interest tax shield as one of the firm's assets on its market value balance sheet.
• D)We can analyze the recapitalization using the market value balance sheet;it states that the total market value of a firm's securities must equal the total market value of the firm's assets.

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Definitions:

Calendar-Year

A one-year period that begins on January 1 and ends on December 31, used by businesses for accounting and tax purposes.

Adjustment

An adjustment in accounting refers to entries made in journal accounts that correct errors or account for expenditures that have not been recorded through the usual processes.

Reversing Entries

Journal entries typically made at the beginning of an accounting period to negate certain adjusting entries made in the previous period for the sake of simplicity in accounting.

Accrue Salary Expense

The process of recognizing salaries incurred by employees during a period but not yet paid by the company.