5. Which of the following statements is false? In general, the gain to investors

Question

5. Which of the following statements is false?

    In general, the gain to investors from the tax deductibility of interest payments is referred to as the interest tax shield.
      The interest tax shield is the additional amount that a firm would have paid in taxes if it did not have leverage.
      Because Corporations pay taxes on their profits after interest payments are deducted; interest expenses reduce the amount of corporate tax firms must pay.
      Because of the tax deductibility of interest payments, firms should borrow as much as possible.

Explanation / Answer

Hi,

Option D (Because of the tax deductibility of interest payments, firms should borrow as much as possible) is false.

Thanks.

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