Which of the Following Statements Is FALSE

question 24

Multiple Choice

Which of the following statements is FALSE?

• A)If the value of the firm's assets exceeds the required debt payment,debt holders are fully repaid.
• B)Another way to view corporate debt: as a portfolio of riskless debt and a short position in a call option on the firm's assets with a strike price equal to the required debt payment.
• C)Viewing debt as an option portfolio is useful as it provides insight into how credit spreads for risky debt are determined.
• D)You can think of the debt holders as owning the firm and having sold a call option with a strike price equal to the required debt payment.

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Definitions:

Master Budget

A comprehensive financial planning document that consolidates all of a company's individual budgets relating to sales, cost of goods sold, operations, and capital expenditures into one overarching budget.

Sales Budget

A financial plan that estimates the expected sales revenue for a period, including units sold and revenue expected.

Cash Budget

A cash budget is a financial plan or forecast that outlines expected cash inflows and outflows over a specific period, helping businesses manage their cash flow.

Purchases Budget

A financial plan that estimates the amount of goods or inventory a business needs to buy over a certain period to meet its sales goals.