Which of the Following Statements Is FALSE

question 79

Multiple Choice

Which of the following statements is FALSE?

• A) The equity cost of capital for a stock is the expected return of other investments available in the market with equivalent risk to the firm's shares.
• B) The price of a share of stock is equal to the present value of the expected future dividends it will pay.
• C) If the current stock price were less than P₀ = , it would be a negative NPV investment, and we would expect investors to rush in and sell it, driving down the stocks price.
• D) The law of one price implies that to value any security, we must determine the expected cash flows an investor will receive from owning it.

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Definitions:

Generally Accepted Accounting Principles

A framework of accounting standards, principles, and procedures that companies must follow when compiling their financial statements in the U.S.

Statement of Stockholders' Equity

A financial statement showing the changes in the value of a company's equity over a specific period, due to earnings, losses, and dividends.

Corporation's Board of Directors

A group of individuals elected by shareholders to oversee the management and make major decisions for a corporation.