Which of the following statements is FALSE?
A)While debt itself may be cheap,it increases the risk and therefore the cost of capital of the firm's equity.
B)Although debt does not have a lower cost of capital than equity,we can consider this cost in isolation.
C)We can use Modigliani and Miller's first proposition to derive an explicit relationship between leverage and the equity cost of capital.
D)The total market value of the firm's securities is equal to the market value of its assets,whether the firm is unlevered or levered.

Question

Quizplus · Accepted Answer

Debt typically has a lower cost of capital than equity due to the tax deductibility of interest payments. Therefore, statement B is false as debt does have a lower cost of capital than equity.

Which of the Following Statements Is FALSE