Which of the Following Statements Is FALSE

question 88

Multiple Choice

Which of the following statements is FALSE?

• A)An important consequence of leverage is the risk of bankruptcy.
• B)Whether default occurs depends on the cash flows,not on the relative values of the firm's assets and liabilities.
• C)Economic distress is a significant decline in the value of a firm's assets,whether or not it experiences financial distress due to leverage.
• D)Modigliani and Miller's results continue to hold in a perfect market even when debt is risky and the firm may default.

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Definitions:

Residual Value

The estimated value of an asset at the end of its useful life.

Capital Lease

A lease classified by lessees as an asset purchase, indicating that the lessee effectively has control over the asset during the lease term.

Interest Revenue

Income earned from deposit accounts or investments through the interest paid by the borrower to the lender.