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:

Output

The cumulative sum of products and services generated by an economy.

Average Fixed Cost

The set expenses associated with production (not influenced by production scale) distributed over the number of items produced.

Marginal Cost

The increase in total production costs resulting from producing one additional unit of a product or service.

Variable Cost

Charges that adjust according to the volume of goods produced or services provided.