Which of the Following Statements Is False

question 16

Multiple Choice

Which of the following statements is false?

• A) The levered equity return equals the unlevered return, plus an extra "kick" due to leverage.
• B) By holding a portfolio of the firm's equity and its debt, we can replicate the cash flows from holding its levered equity.
• C) The cost of capital of levered equity is equal to the cost of capital of unlevered equity plus a premium that is proportional to the market value debt-equity ratio.
• D) If a firm is unlevered, all of the free cash flows generated by its assets are available to be paid out to its equity holders.

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Definitions:

Activity Level

A measure of the volume of production or operation activity that influences costs, used in variable costing to adjust for changes in operating scale.

Product Costs

Costs directly associated with the manufacturing of products, including materials, labor, and factory overhead.

Financial Reporting

The process of producing statements that disclose an organization's financial status to management, investors, and the government.

Average Costs

The cost per unit of output, calculated by dividing total costs by the total number of units produced.