Which One of the Following Statements Is NOT True

question 31

Multiple Choice

Which one of the following statements is NOT true?

• A) A strategic investor is one who has an interest in acquiring the business.
• B) The investment value of the firm to a strategic investor will take into consideration the benefits that can accrue from the acquisition.
• C) The market value of a business is likely to carry a higher value than the investment value.
• D) A financial investor, on the other hand, is only interested in the financial performance of the firm and not in acquiring the business.

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Definitions:

M&M Proposition II

Part of the Modigliani-Miller theorem on capital structure, stating that the cost of equity increases with higher levels of debt, as a consequence of the increased risk taken by equity holders.

Cost of Equity

The compensation that investors demand for bearing the risk of owning stock, usually reflected by earnings or dividend growth expectations.

Required Rate of Return

The minimum annual percentage earned by an investment that will induce individuals or companies to put money into a particular security or project.

M&M Proposition II

Part of the Modigliani-Miller theorem stating that a company's cost of equity increases as its level of debt increases, due to the higher risk of default.