Which of the following statements is false? Maximization of owner value and soci

Question

Which of the following statements is false? Maximization of owner value and societal benefits are not always Agency problems are not as pronounced in sole proprietorships. Each form of business has its distinct advantages and disadvantages. Corporate earnings are subject to the same tax as partnership earnings firm increases its debt ratio from 50% to 75%. Which of the following correct: the stockholders' equity to total assets has increased the firm probably has very low borrowing costs earnings after interest expense but before taxes will increase the firm's positive ROE will increase

Explanation / Answer

Answer-1

Statement B is false, which says that agency problems are not pronounced in sole proprietorship.

Statement A is True As Maximization of owner value and social benefits are not always consitent, it keeps changing.

Statement C is True since Each form of Business has its distinct advantage and disadvantage

Statement C is True Corporate earnings are subject to the same Tax Rates as Partnership Earnings.

Answer No. 2

Option the firms positive ROE will increase is True

Debt Equity Ratio= Total Liabilities/ Total Asset-Liability(Equity)

Debt Equity Ratio can be increased if numerator Total Liabillty will increase or Denominator Equity will decrease

Hence first 2 options are not true

If Debt increases Interest Expense Decreases, results in decrease in Earning after Tax Income.

Hence option 3 is also not true.

The more debt a company has, the less shareholders' equity it has, as a % of Total Assets, and the higher its ROE is.

ROE=Net Income/Equity Shareholders

Hence Option 4 is True

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