Question
Which of the following statements is FALSE? No corporate tax benefit arises from incurring interest payments in excess of EBIT The optimal level of leverage
Which of the following statements is FALSE?
| No corporate tax benefit arises from incurring interest payments in excess of EBIT |
| The optimal level of leverage from a tax saving perspective is the level such that interest equals EBIT. |
| A biotech firm might be developing drugs with tremendous potential, but it has yet to receive any revenue from these drugs. Such a firm will not have taxable earnings. In that case, a tax-optimal capital structure does not include debt. |
| In general, as a firm's interest expense approaches its expected taxable earnings, the marginal tax advantage of debt increases, limiting the amount of equity the firm should use |
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