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:

Equilibrium Price

The price point at which the supply of an item matches the demand for it, resulting in a stable market situation without excess or shortage.

Equilibrium Quantity

The quantity of a good or service at which supply equals demand, resulting in no net surplus or shortage in the market.

Ironing Boards

Flat, foldable boards used as a stable surface for ironing clothes and linens.

Equilibrium Quantity

The quantity of goods or services supplied that is equal to the quantity demanded at a particular price level, reaching a state of market balance.