Which of the Following Statements Is FALSE

question 71

Multiple Choice

Which of the following statements is FALSE?

• A)As long as investors can borrow or lend at the same interest rate as the firm,homemade leverage is a perfect substitute for the use of leverage by the firm.
• B)When investors use leverage in their own portfolios to adjust the leverage choice made by the firm,we say that they are using homemade leverage.
• C)The value of the firm is determined by the present value of the cash flows from its current and future investments.
• D)The investor can re-create the payoffs of unlevered equity by borrowing and using the proceeds to purchase the equity of the firm.

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Definitions:

Owner's Capital

The amount of money and assets the owner has invested in a business.

Revenues

The complete revenue earned from selling goods or services that are fundamental to a company's core business activities.

Expenses

Monetary costs incurred in the operation of a business, leading to the creation of liabilities or decrease in assets.

Basic Accounting Equation

The fundamental equation of double-entry bookkeeping, stating that assets equal liabilities plus owner's equity.