Which of the Following Statements Is FALSE

question 50

Multiple Choice

Which of the following statements is FALSE?

• A) The Law of One Price implies that leverage will affect the total value of a 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 a 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:

LIFO Retail Inventory Method

An inventory costing method that assumes the last items placed in inventory are sold first, not necessarily reflecting the actual physical flow of merchandise.

Ending Inventory

The value of goods available for sale at the end of an accounting period, calculated as the beginning inventory plus purchases minus cost of goods sold.

Net Markups

The difference between the cost of a good or service and its selling price, after accounting for discounts, allowances, or returns.

Net Markdowns

The reduction in the original selling price of merchandise minus any markdown cancellations.