Which of the Following Statements Is FALSE

question 37

Multiple Choice

Which of the following statements is FALSE?

• A) Investors can alter the leverage choice of a firm to suit their personal tastes either by borrowing and reducing leverage or by holding bonds and adding more leverage.
• B) As per MM proposition II, the cost of capital of levered equity is equal to the cost of capital of unlevered equity plus a premium that is proportional to the debt-equity ratio.
• C) The MM propositions imply that the true role of a firm's financial policy is to deal with financial market imperfections such as taxes and transaction costs.
• D) In practice, we will find that capital structure can have an effect on a firm's value.

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Definitions:

Common Resource

A resource like fish stocks, forests, or clean air, that provides users with tangible benefits but is susceptible to overuse and depletion.

Public Good

An offering of products or services to every member of society at no cost, provided by either governmental bodies or private organizations, without aiming for financial gain.

Not Excludable

A characteristic of certain goods where it is not feasible to prevent individuals from consuming the good, such as public parks.

Not Rival

Refers to a good's characteristic where one person's consumption does not reduce the availability of the good for consumption by others.