Which of the Following Statements Is FALSE

question 36

Multiple Choice

Which of the following statements is FALSE?

• A)With no debt,the WACC is equal to the unlevered equity cost of capital.
• B)With perfect capital markets,a firm's WACC is dependent on its capital structure and is equal to its equity cost of capital only if the firm is levered.
• C)As the firm borrows at the low cost of capital for debt,its equity cost of capital rises,but the net effect is that the firm's WACC is unchanged.
• D)Although debt has a lower cost of capital than equity,leverage does not lower a firm's WACC.

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Definitions:

Sustainable Rate Of Growth

The maximum rate at which a company can grow its sales, earnings, and dividends without increasing its debt or equity.

Profit Margin

A financial indicator that calculates how much net profit is generated for every dollar of sales by examining the relationship between a company's net income and its revenue.

Projected Addition

An estimate of future increases or expansions in inventory, assets, or capacity planned by a firm.

Current Ratio

The Current Ratio is a liquidity metric that measures a company's ability to pay short-term obligations or those due within one year, calculated as current assets divided by current liabilities.