Which of the Following Statements Is FALSE

question 28

Multiple Choice

Which of the following statements is FALSE?

• A)Modigliani and Miller's conclusion verified the common view,which stated that even with perfect capital markets,leverage would affect a firm's value.
• B)We can evaluate the relationship between risk and return more formally by computing the sensitivity of each security's return to the systematic risk of the economy.
• C)Investors in levered equity require a higher expected return to compensate for its increased risk.
• D)Leverage increases the risk of equity even when there is no risk that the firm will default.

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Definitions:

Financial Statements

Formal records of a company's financial activities and condition, including balance sheet, income statement, and cash flow statement.

Fixed Assets

Fixed Assets, also known as non-current assets, are long-term tangible assets held for business use and not expected to be converted into cash in the upcoming year, such as buildings, machinery, and vehicles.

Sales Increase

The rise in the volume or amount of sales or services sold by a company within a particular period.

Capacity

Capacity refers to the maximum level of output that a company can sustain to produce in a given period under normal conditions.