Which of the Following Statements Is FALSE

question 27

Multiple Choice

Which of the following statements is FALSE?

• A)A firm's market capitalisation is determined by the difference in the market value of its assets and its liabilities.
• B)We can measure a firm's sensitivity to interest rates by computing the duration of its balance sheet.
• C)Just as the interest rate sensitivity of a single cash flow increases with its maturity, the interest rate sensitivity of a stream of cash flows increases with its duration.
• D)By restructuring the balance sheet to increase its duration, we can hedge the firm's interest rate risk.

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Definitions:

Warranty Service

A promise from the seller or manufacturer to repair or replace defective products within a specified time period at no additional cost to the buyer.

Estimated Warranty Expense

An accounting provision representing the anticipated cost of honoring product warranties, calculated based on historical warranty data and sales forecasts.

Warranty Obligation

A company's legal responsibility to repair or replace defective products within a specified period.

Warranty Costs

Expenses incurred by a company for repairing or replacing products under warranty.