Which of These Statements Is Not True

question 95

Multiple Choice

Which of these statements is not true?

• A) Transactions to reduce risk are unlikely to add value if investors can easily undertake similar transactions.
• B) Hedging may reduce the costs of financial distress.
• C) Transactions to reduce risk always add value.
• D) Hedging is a zero-sum game.

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Definitions:

Discount Rate

Discount Rate is the interest rate used in discounted cash flow (DCF) analysis to determine the present value of future cash flows.

Mutually Exclusive

Situations or events that cannot occur at the same time; choosing one option excludes the choice of another.

Cash Flows

The total sum of money transfers both incoming and outgoing in a firm, majorly affecting its financial readiness.

Profitability Index (PI)

The present value of an investment’s future cash flows divided by its initial cost; also benefit/cost ratio.