Which of the Following Statements Is FALSE

question 33

Multiple Choice

Which of the following statements is FALSE?

• A)To determine the true tax benefit of leverage,we need to evaluate the combined effect of both corporate and personal taxes.
• B)A personal tax disadvantage for debt causes the WACC to decline more slowly with leverage than it otherwise would.
• C)Personal taxes have an indirect effect on the firm's weighted average cost of capital.
• D)In the United States and many other countries,capital gains from equity have historically been taxed more heavily than interest income.

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Definitions:

Fair Market Value

The price at which an asset would trade in a competitive auction setting.

Sam, Capital

An account representing the owner's (Sam's) equity or ownership interest in a business.

Profit and Loss Ratio

An indicator that measures the ratio of profits earned to losses incurred over a particular period, often used to assess a company's financial health.

Income Summary

A temporary account in the ledger that summarizes revenue and expenses and transfers the balance (net income or net loss) to Capital. This account does not have a normal balance, i.e. it could have a debit or a credit balance.