Which of the Following Questions Is FALSE

question 79

Multiple Choice

Which of the following questions is FALSE?

• A)Sometimes management may believe that the securities they are issuing are priced at less than (or more than)their true value.If so,the NPV of the transaction,which is the difference between the actual money raised and the true value of the securities sold,should not be included in the value of the project.
• B)An alternative method of incorporating financial distress and agency costs is to first value the project ignoring these costs,and then value the incremental cash flows associated with financial distress and agency problems separately.
• C)When the debt level-and,therefore,the probability of financial distress-is high,the expected free cash flow will be reduced by the expected costs associated with financial distress and agency problems.
• D)If the financing of the project involves an equity issue,and if management believes that the equity will sell at a price that is less than its true value,this mispricing is a cost of the project for the existing shareholders.

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Definitions:

Perpetual LIFO

Perpetual Last-In-First-Out is an inventory cost method assuming that the last items added to inventory are the first sold, continually updating inventory and cost of goods sold values.

Ending Inventory

The overall price of items available for selling at the end of a fiscal period.

Inventory Units

Quantities of goods held by a business for the purpose of sale or production.

Purchase Discounts

Reductions in the purchase price of goods, usually provided by a supplier to the buyer for early payment or bulk buying.