Which of the Following Statements Is FALSE

question 37

Multiple Choice

Which of the following statements is FALSE?

• A) Investors can alter the leverage choice of a firm to suit their personal tastes either by borrowing and reducing leverage or by holding bonds and adding more leverage.
• B) As per MM proposition II, the cost of capital of levered equity is equal to the cost of capital of unlevered equity plus a premium that is proportional to the debt-equity ratio.
• C) The MM propositions imply that the true role of a firm's financial policy is to deal with financial market imperfections such as taxes and transaction costs.
• D) In practice, we will find that capital structure can have an effect on a firm's value.

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Definitions:

Accounting

The systematic process of recording, analyzing, summarizing, and reporting the financial transactions of a business or individual.

Recordkeeping

The process of maintaining records or documents that track an organization's financial transactions and history.

External Users

Individuals or entities outside of a company who use its financial statements and other reports to make informed decisions, such as investors, creditors, and regulatory agencies.

Internal Users

Individuals or groups within an organization, such as management and employees, who use financial information to make decisions about operations.