Which of the Following Statements Is False

question 13

Multiple Choice

Which of the following statements is false?

• A) As long as investors can borrow or lend at the same interest rate as the firm, homemade leverage is a perfect substitute for the use of leverage by the firm.
• B) When investors use leverage in their own portfolios to adjust the leverage choice made by the firm, we say that they are using homemade leverage.
• C) The value of the firm is determined by the present value of the cash flows from its current and future investments.
• D) The investor can re-create the payoffs of unlevered equity by borrowing and using the proceeds to purchase the equity of the firm.

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Definitions:

Net Asset Value

The value per share of a mutual fund or an exchange-traded fund, calculated by dividing the total value of all the fund's assets minus liabilities by the number of shares outstanding.

Year-End Assets

The total value of all assets owned by an entity at the end of the fiscal year.

Liabilities

Financial obligations or debts owed by a person or company to others.

Mixed Asset Classes

Investment portfolios that include a combination of stocks, bonds, and other securities to achieve diversification.