Which of the Following Statements Is FALSE

question 36

Multiple Choice

Which of the following statements is FALSE?

• A) With perfect capital markets, leverage merely changes the allocation of cash flows between debt and equity, without altering the total cash flows of the firm.
• B) In the absence of taxes or other transaction costs, the total cash flow paid out to all of a firm's security holders is equal to the total cash flow generated by the firm's assets.
• C) In a perfect capital market, the total value of a firm is equal to the market value of the total cash flows generated by its assets and is not affected by its choice of capital structure.
• D) The Law of One Price implies that leverage will affect the total value of the firm under perfect capital market conditions.

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Definitions:

Withdrawals

Sums of money taken out from an account, fund, or deposit by the account holder.

Investment

Investment refers to the action of allocating resources, usually money, with the expectation of generating an income or profit.

Compounded Quarterly

A repetitive method of calculating interest where the interest is calculated and added to the principal every three months, leading to an increase in the amount of interest earned over time.

Regular Investment

An investment strategy involving the consistent investment of a fixed amount of money at regular intervals, regardless of market conditions.