Which of the Following Statements Is FALSE

question 52

Multiple Choice

Which of the following statements is FALSE?

• A)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.
• B)The Law of One Price implies that leverage will affect the total value of the firm under perfect capital market conditions.
• C)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.
• D)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.

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Definitions:

Technological Knowledge

Information and skills acquired through experience or education regarding the use, development, and application of technological tools and systems.

Productivity

The measure of the efficiency of production, typically expressed as the ratio of output to inputs used in the production process.

Real GDP

Real GDP, or Real Gross Domestic Product, measures the value of all final goods and services produced within a country in a given period, adjusted for inflation to reflect changes in price levels.

Market Prices

Prices that are determined by the interaction of supply and demand in a marketplace.