Consider the Following Equation for the Question(s)below

question 15

Multiple Choice

Consider the following equation for the question(s) below:
E + D = U = A
-Which of the following statements is FALSE?

• A)With no debt, the WACC is equal to the unlevered equity cost of capital.
• B)As the firm borrows at the low cost of capital for debt, its equity cost of capital rises, but the net effect is that the firm's WACC is unchanged.
• C)With perfect capital markets, a firm's WACC is dependent on its capital structure and is equal to its equity cost of capital only if the firm is unlevered.
• D)Although debt has a lower cost of capital than equity, leverage does not lower a firm's WACC.

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Definitions:

Subsidization

Financial assistance granted by the government or an organization to support an economic sector, business, or consumer, making the goods or services more affordable.

Capitalist States

Countries where economic systems are based on private ownership and the free market determines allocation of resources.

Authoritarian States

Nations where political power is concentrated in a single authority, with limited personal freedoms.

Individual Wealth

The total value of all assets owned by a single person, minus any debts.