Which of the Following Statements Is FALSE

question 16

Multiple Choice

Which of the following statements is FALSE?

• A)If the debt-equity ratio changes over time,the risk of equity-and,therefore,its cost of capital-will change as well.
• B)The FTE method can offer an advantage when calculating the value of equity for the entire firm,if the firm's capital structure is complex and the market values of other securities in the firm's capital structure are not known.
• C)The FTE approach does not have the same disadvantage associated with the APV approach.We don't need to compute the project's debt capacity to determine interest and net borrowing before we can make the capital budgeting decision.
• D)The WACC and APV methods compute the firm's enterprise value,so that a separate valuation of the other components of the firm's capital structure is needed to determine the value of equity.

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Definitions:

Contractual Systems

Arrangements or agreements between two or more parties that legally bind them to specific obligations or responsibilities, often seen in business agreements or franchising.

Corporate Chains

Companies that own or control a series of outlets or branches under a common brand.

Publicly Traded

Describes a company whose shares are bought and sold freely on one or more stock exchanges.

Volume Discounts

Reduced prices or rates offered by a seller to a buyer based on the quantity of goods or services purchased, typically incentivizing larger orders.