All of the Following Statements Are Correct, Except

question 33

Multiple Choice

All of the following statements are correct, except:

• A) The firm's optimum debt/equity mix minimizes the firm's cost of capital, which in turn helps the firm to maximize shareholder wealth
• B) A firm's mix of debt and equity used to finance its assets is not the firm's capital structure.
• C) A non-optimal capital structure with either too much or too little debt leads to higher financing costs, and the firm will likely reject some capital budgeting projects that could have increased shareholder wealth with an optimal financing mix.
• D) A project's NPV represents the increase in shareholders' wealth from undertaking a project; thus, a lower weighted average cost of capital gives higher project net present values and results in higher levels of shareholder wealth.

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Definitions:

Social Interest

The concept in psychology that refers to an individual's inclination towards being cooperative and contributing to the welfare of the community.

Personality

The unique combination of characteristics and qualities that form an individual's distinct character, influencing thoughts, behaviors, and emotions.

Superiority Complex

A psychological defense mechanism in which a person’s feelings of superiority over others mask their own feelings of inadequacy or inferiority.

Exaggerated Opinion

A belief or judgment that is significantly overstated or represented more strongly than is justified by the facts.