Which of the following does not correctly describe influences on the level of gearing?
A) The risk of financial distress causes firms to moderate their gearing levels.
B) In Modigliani and Miller's world with corporate tax, the optimal gearing is the highest possible.
C) Reinvestment risk is diminished by high gearing.
D) Managers generally have a preference for high gearing levels.

Question

Quizplus · Accepted Answer

This statement is not accurate as managers may have a preference for low or moderate gearing levels depending on various factors such as the company's growth prospects, borrowing capacity, and risk tolerance. The other options are accurate descriptions of influences on the level of gearing.

Which of the Following Does Not Correctly Describe Influences on the Level