Which of the Following Statements Is FALSE

question 76

Multiple Choice

Which of the following statements is FALSE?

• A)The Law of One Price implies that leverage will affect the total value of the firm under perfect capital market conditions.
• B)In the absence of taxes or other transaction costs,the total cash flow paid out to all of a firm's security holders is equal to the total cash flow generated by the firm's assets.
• C)With perfect capital markets,leverage merely changes the allocation of cash flows between debt and equity,without altering the total cash flows of the firm.
• D)In a perfect capital market,the total value of a firm is equal to the market value of the total cash flows generated by its assets and is not affected by its choice of capital structure.

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Definitions:

Opportunity Cost

The foregone benefit that would have been derived by choosing an alternative option.

Differential Cost

A future cost that differs between any two alternatives.

Variable Cost Per Unit

The cost that varies with each unit produced, not including fixed costs.

Units Sold

The total number of units of a product that have been sold during a particular period.