Which of the Following Statements Is FALSE

question 70

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:

Formal Channels

These are officially established and structured paths for communication or information flow within an organization.

Tangible Assets

Physical and material assets that have intrinsic value, such as machinery, buildings, and inventory.

Intangible Assets

Non-physical assets that have value, such as patents, trademarks, copyright, and goodwill.

Sales Potential

An estimate of the maximum total revenue a product or service can generate under ideal conditions.