Which of the following statements is FALSE?
A) The levered equity return equals the unlevered return plus an extra "kick" due to leverage.
B) By holding a portfolio of a firm's equity and its debt, we can replicate the cash flows from holding its levered equity.
C) 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 market value debt-equity ratio.
D) If a firm is unlevered, all of the free cash flows generated by its assets are available to be paid out to its equity holders.
Answer: B
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Under the effective interest method, the cash paid on each interest payment date will
a. decrease if bonds are issued at a premium. b. increase if bonds are issued at a premium. c. remain constant regardless of the issuance price. d. increase if bonds are issued at a discount.
Consider Figure 5.1. Suppose the Mexican government provides a subsidy of $200 per ton to its steel producers, as indicated by the supply schedule SM (with subsidy). The quantity of imports equals
a. 1 ton. b. 2 tons. c. 3 tons. d. 4 tons.
Creativity allows public organizations to be:
A) Adequately funded for future operations B) Responsive and to develop new and better ways of serving citizens C) More process oriented D) Efficient at reducing overheads
Treble damages are allowed in an FTC Act violation
Indicate whether the statement is true or false