Which of the Following Statements Is False

question 20

Multiple Choice

Which of the following statements is false?

• A) With no debt, the WACC is equal to the unlevered equity cost of capital.
• B) With perfect capital markets, a firm's WACC is dependent of its capital structure and is equal to its equity cost of capital only the firm it is unlevered.
• C) As the firm borrows at the low cost of capital for debt, its equity cost of capital rises, but the net effect is that the firm's WACC is unchanged.
• D) Although debt has a lower cost of capital than equity, leverage does not lower a firm's WACC.

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Definitions:

Return On Investment (ROI)

A measure of the profitability of an investment, calculated as the net profit from the investment divided by the cost of the investment.

Return On Investment (ROI)

A measure of profitability calculated by dividing net profit by the cost of investments.

Return On Investment (ROI)

A performance measure used to evaluate the efficiency of an investment by comparing its gain to its cost.

Contribution Margin Ratio

The proportion of revenue from each dollar of sales that goes toward covering fixed expenses and creating profit.