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:

Social Responsibility

The ethical framework suggesting that entities, whether businesses or individuals, have an obligation to act for the benefit of society at large.

Larger Society

Refers to the broader social environment beyond local or immediate contexts, encompassing national or global communities and their norms, values, and structures.

Accountable

Being responsible for one's actions and decisions, often within a professional or organizational context, ensuring transparency and trust.

Profit Responsibility

An organization's or individual's obligation to achieve and maintain profitability through efficient operations and activities.