All of the Following Statements Are Correct Except

question 82

Multiple Choice

All of the following statements are correct except:

• A)The firm's optimum debt/equity mix maximizes 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 defines the firm's capital structure.
• C)A nonoptimal 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.
• E)All of the above statements are correct.

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Definitions:

Contractual Agreement

A legally binding agreement between two or more parties, typically outlining the terms and conditions of a business transaction or relationship.

Equity Method

An accounting technique used to record investments in which the investor has significant influence over the investee, recognizing the proportionate share of the investee's net income or loss.

Variable Interest Enterprise

An entity in which an investor holds a controlling interest that is not based on a majority of voting rights.

Consolidated Financial Statements

Financial statements that combine the financial information of a parent company with its subsidiaries into one comprehensive document.