CFA Practice Question

There are 151 practice questions for this study session.

CFA Practice Question

Which of the following statements is false?
A. If there are perfect markets and no taxes, choose any capital structure. The investor can alter leverage at no cost.
B. If interest expenses are tax deductible, the greater the amount of leverage, the greater the tax savings, other things being equal.
C. If markets are not perfect, there are taxes and there are costs of financial distress, the firm should use 100 percent debt in its capital structure.
Explanation: If markets are not perfect, there are taxes and there are costs of financial distress, the firm should use the level of debt where the marginal benefit of the tax shield equals the marginal cost of the financial distress.

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