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:

Index Funds

Mutual funds or ETFs designed to track the components of a market index, offering broad market exposure and low operating expenses.

Expected Monetary Value

A statistical concept that calculates the average outcome of a future event that may or may not happen, taking into account all possible scenarios and their probabilities.

Average Payoff

The expected outcome or return of an investment or decision averaged over all possible scenarios.

Expected Value

The predicted value of a variable, calculated as the weighted average of all possible values this variable can take; each value is weighted by its probability of occurrence.