Which of the Following Statements Is FALSE

question 100

Multiple Choice

Which of the following statements is FALSE?

• A)The presence of financial distress costs can explain why firms choose debt levels that are too high to fully exploit the interest tax shield.
• B)With higher costs of financial distress,it is optimal for the firm to choose lower leverage.
• C)Differences in the magnitude of financial distress costs and the volatility of cash flows can explain the differences in the use of leverage across industries.
• D)At the point D*,where V^L is maximized,the tax savings that result from increasing leverage are just offset by the increased probability of incurring the costs of financial distress.

---

Definitions:

Traditional

Pertaining to customs, practices, or methods that have been passed down through generations, often reflecting the historical aspects of a culture.

Committed Partnership

A relationship where individuals agree to be together and support each other in a long-term, dedicated manner.

Only Child

An individual who has no siblings and is the sole child of their parents, affecting their socialization and familial interactions.

Quality Friendships

Relationships characterized by depth, mutual respect, and a significant emotional connection that contribute positively to individuals’ well-being.