Which of the Following Statements Is FALSE

question 16

Multiple Choice

Which of the following statements is FALSE?

• A) Because insurance reduces the risk of financial distress, it can relax this tradeoff and allow the firm to increase its use of debt financing.
• B) By lowering the volatility of the stock, insurance can discourage concentrated ownership by an outside director or investor who will monitor the firm and its management.
• C) When a firm is subject to graduated income tax rates, insurance can produce a tax savings if the firm is in a higher tax bracket when it pays the premium than the tax bracket it is in when it receives the insurance payment in the event of a loss.
• D) In a perfect market without other frictions, insurance companies should compete until they are just earning a fair return and the NPV from selling insurance is zero. The NPV is zero if the price of insurance equals the present value of the expected payment; in that case, we say the price is actuarially fair.

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Definitions:

Four Ps

A marketing mix model that includes Product, Price, Place, and Promotion, used by businesses to consider key factors in marketing strategies.

Marketing

The process of exploring, creating, and delivering value to meet the needs of a target market in terms of goods, services, or ideas.

Supply Chain Management

The control over the transportation and warehousing of raw materials, goods in the production process, and finalized items from their source to their destination of use.

Supply Chain

A network comprising of entities, individuals, processes, data, and assets that facilitate the transit of a good or service from its origin to the end user.