Which of the Following Is NOT True About Bankruptcy and Its

Multiple Choice

Which of the following is NOT true about bankruptcy and its costs?

A) As the debt/equity ratio falls, the probability that a firm will be able to meet the promised payments on bonds decreases.
B) If a firm is economically bankrupt, then an ensuing legal bankruptcy will likely result in the bondholders receiving less than what they are owed.
C) The amount of debt a firm can raise decreases as the probability of bankruptcy increases.
D) A firm is economically bankrupt when the value of its assets is less than the value of its debt.
E) Direct bankruptcy costs are a disincentive to debt financing.