Which of the Following Statements Is FALSE

question 16

Multiple Choice

Which of the following statements is FALSE?

• A)If the debt-equity ratio changes over time,the risk of equity-and,therefore,its cost of capital-will change as well.
• B)The FTE method can offer an advantage when calculating the value of equity for the entire firm,if the firm's capital structure is complex and the market values of other securities in the firm's capital structure are not known.
• C)The FTE approach does not have the same disadvantage associated with the APV approach.We don't need to compute the project's debt capacity to determine interest and net borrowing before we can make the capital budgeting decision.
• D)The WACC and APV methods compute the firm's enterprise value,so that a separate valuation of the other components of the firm's capital structure is needed to determine the value of equity.

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Definitions:

Perceptual Process

The sequence of steps through which individuals receive, organize, and interpret sensory information from their environment.

Response

A reaction to a specific stimulus or series of events, whether verbal, nonverbal, or through actions.

Organization

An arranged group of people with a particular purpose, such as a business, government department, charity, or club, structured to facilitate collaboration and achieve goals.

Interpretation

The action of explaining the meaning of something; the way something is understood or explained.