Which of the Following Statements Is False

question 44

Multiple Choice

Which of the following statements is false?

• A) While debt itself may be cheap, it increases the risk and therefore the cost of capital of the firm's equity.
• B) Although debt does not have a lower cost of capital than equity, we can consider this cost in isolation.
• C) We can use Modigliani and Miller's first proposition to derive an explicit relationship between leverage and the equity cost of capital.
• D) The total market value of the firm's securities is equal to the market value of its assets, whether the firm is unlevered or levered.

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Definitions:

Marginal Costs

The cost incurred by producing one additional unit of a good or service.

Quantity Of Output

The total amount of product or service produced by a company during a given period.

Production Expenses

Costs incurred in the process of manufacturing or producing goods and services.

Variable Cost Estimate

An approximation of the costs that vary in direct proportion to the volume of output or production, such as materials and labor.