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.

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Definitions:

Price Increase

A rise in the cost of goods or services.

Complements

Goods, such as Pepsi and pizza, that relate in such a way that an increase in the price of one shifts the demand for the other leftward.

Milk

A nutritious liquid produced by mammals, primarily used as a food product for humans.

Coffee

A popular beverage made from roasted coffee beans, known for its stimulating effect due to caffeine content; it also has significant social and economic implications worldwide.