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:

Sells

Transactions in which an asset is transferred from the seller to a buyer for a certain price.

Market Rate

The prevailing interest rate available in the marketplace for securities or loans.

Annual Dividend

The total dividend payments a company makes to its shareholders in one year.

Increase Annually

A repeated growth or rise in value or amount each year.