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:

Stock Price

Stock price is the current market price at which a share of stock can be bought or sold, reflecting the value that the market assigns to a company.

Required Return

The minimum return that investors expect to earn on their investment to compensate for its risk.

Dividend Yield

A financial proportion demonstrating how a company's annual dividend payout stands in comparison to its stock price.

Stock Price

The cost of purchasing a share of a company, which fluctuates based on demand and supply in the market.