Which of the Following Questions Is FALSE

question 79

Multiple Choice

Which of the following questions is FALSE?

• A)Sometimes management may believe that the securities they are issuing are priced at less than (or more than)their true value.If so,the NPV of the transaction,which is the difference between the actual money raised and the true value of the securities sold,should not be included in the value of the project.
• B)An alternative method of incorporating financial distress and agency costs is to first value the project ignoring these costs,and then value the incremental cash flows associated with financial distress and agency problems separately.
• C)When the debt level-and,therefore,the probability of financial distress-is high,the expected free cash flow will be reduced by the expected costs associated with financial distress and agency problems.
• D)If the financing of the project involves an equity issue,and if management believes that the equity will sell at a price that is less than its true value,this mispricing is a cost of the project for the existing shareholders.

Comprehend the fundamental accounting equation and its components (Assets = Liabilities + Equity).

Recognize the nature and classification of assets, liabilities, and equity.

Calculate equity given assets and liabilities.

Understand how transactions impact the accounting equation.

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Definitions:

Payments

The act of transferring money to fulfill an obligation, such as in purchasing goods or services or repaying a loan.

Penalty

A punishment imposed for breaking a law, rule, or contract, which often involves paying a fine or forfeiting something.

Mark-Up

The amount added to the cost of a product or service to cover overhead and profit.

Selling Price

The amount of money for which a product is sold to the customer, after accounting for discounts, rebates, and other adjustments.