Which of the Following Statements Is False

question 49

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.

---

Definitions:

Unearned Revenue

Amounts received for goods or services that have not yet been provided, recorded as a liability until the service or product is delivered.

Liability

An obligation or debt that a company must pay in the future, arising from past transactions or events.

Credit

An accounting entry that increases a liability or equity account, or decreases an asset or expense account.

Prepaid Rent Payment

An advance payment of rent that is made before it is due, typically recorded as an asset on a balance sheet until utilized.