Which of the Following Statements Is False

question 3

Multiple Choice

Which of the following statements is false?

• A) Rather than set debt according to a target debt-equity ratio or interest coverage level, a firm may adjust its debt according to a fixed schedule that is known in advance.
• B) When we relax the assumption of a constant debt-equity ratio, the equity cost of capital and WACC for a project will change over time as the debt-equity ratio changes.
• C) When we relax the assumption of a constant debt-equity ratio, the APV and FTE methods are difficult to implement.
• D) If a firm is using leverage to shield income from corporate taxes, then it will adjust its debt level so that its interest expenses grow with its earnings.

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Definitions:

Break-even Analysis

Break-even analysis is a financial calculation used to determine the point at which revenue equals costs, indicating no net loss or gain, and is used for decision making in business planning.

Employee Wages

Employee wages refer to the fixed regular compensation paid by employers to employees for their labor or services, typically expressed as an hourly, daily, or monthly rate.

Environmental Uncertainty

A condition where there is a lack of information about the environmental factors that can affect an organization's operations.

State Uncertainty

The condition in which there is lack of certainty or predictability concerning the future or the current state of something, often affecting decision-making processes.