Which of the following statements is false?
A) With zero taxes and zero bankruptcy costs, the value of the firm is independent of its debt-equity ratio.
B) With taxes and zero bankruptcy costs, the value of the firm reaches a maximum and then declines as the debt-equity ratio increases.
C) With taxes and bankruptcy costs, the value of the firm reaches a maximum and then declines as the debt-equity ratio increases.

Question

Quizplus · Accepted Answer

With taxes and zero bankruptcy costs, the value of the firm increases with the debt-equity ratio due to the tax shield on debt, and it does not decline.

Which of the Following Statements Is False