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:

Fed Targeting

Fed targeting involves the Federal Reserve using monetary policy tools to aim for specific economic targets, such as inflation rates or employment levels.

Money Supply

The whole assembly of monetary resources in an economy at a certain time period.

Interest Rate

is the cost of borrowing money, typically expressed as a percentage of the principal, charged by lenders to borrowers.

Federal Reserve

The central banking system of the United States, responsible for monetary policy, regulation of financial institutions, and maintaining stability in the financial system.