Which of the Following Statements Is False

question 7

Multiple Choice

Which of the following statements is false?

• A) The unlevered beta measures the market risk of the firm's business activities, ignoring any additional risk due to leverage.
• B) If a firm holds $1 in cash and has $1 of risk-free debt, then the interest earned on the cash will equal the interest paid on the debt. The cash flows from each source cancel each other, just as if the firm held no cash and no debt.
• C) The unlevered beta measures the market risk of the firm without leverage, which is equivalent to the beta of the firm's assets.
• D) When a firm changes its capital structure without changing its investments, its levered beta will remain unaltered, however, its asset beta will change to reflect the effect of the capital structure change on its risk.

---

Definitions:

Financial Gains

The increase in monetary resources, often resulting from investments, employment, or business activities.

Health Care Coverage

Insurance that pays for medical expenses and sometimes dental expenses.

Family Stability

A condition of consistent family structure and positive, supportive interactions among family members.

Three-Generation Household

A living arrangement consisting of three generations of family members, such as grandparents, parents, and children, living together.