Which of the Following Statements Is False

question 82

Multiple Choice

Which of the following statements is false?

• A) If the debt-equity ratio changes over time, the risk of equity-and, therefore, its cost of capital-will change as well.
• B) The FTE method can offer an advantage when calculating the value of equity for the entire firm, if the firm's capital structure is complex and the market values of other securities in the firm's capital structure are not known.
• C) The FTE approach does not have the same disadvantage associated with the APV approach: We don't need to compute the project's debt capacity to determine interest and net borrowing before we can make the capital budgeting decision.
• D) The WACC and APV methods compute the firm's enterprise value, so that a separate valuation of the other components of the firm's capital structure is needed to determine the value of equity.

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Definitions:

Net 30 Policy

A term indicating that payment is due in full 30 days after the goods are delivered or the service is completed.

Average Inventory

The mean value of all inventory a company holds over a certain period of time, reflecting the average amount of stock available.

Carrying Cost

The total cost of holding inventory, including storage, insurance, depreciation, and opportunity costs, among others.