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:

Net Working Capital

The difference between a company's current assets and its current liabilities.

Flexible Policy

A strategy that allows for adaptability and change in response to different situations or conditions.

Restrictive Policy

A financial or operational strategy that limits certain actions to control risk or enhance stability within a company or economy.

Operating Cycle

The operating cycle is the time period it takes for a company to purchase inventory, sell it, and convert the sale into cash.