Which of the following statements is FALSE?
A)Holding cash has the opposite effect of leverage on risk and return.
B)We use the market value of the firm's net debt when computing its WACC and unlevered beta to measure the cost of capital and market risk of the firm's business assets.
C)Since the WACC does not change with the use of leverage,the value of the firm's free cash flow evaluated using the WACC does not change,and so the enterprise value of the firm does not depend on its financing choices.
D)Even if the firm's capital structure is more complex,the WACC is calculated by computing the weighted average cost of only the firm's debt and equity.

Question

Quizplus · Accepted Answer

The Answer of Which of the following statements is FALSE?
A)Holding cash has the opposite effect of leverage on risk and return.
B)We use the market value of the firm's net debt when computing its WACC and unlevered beta to measure the cost of capital and market risk of the firm's business assets.
C)Since the WACC does not change with the use of leverage,the value of the firm's free cash flow evaluated using the WACC does not change,and so the enterprise value of the firm does not depend on its financing choices.
D)Even if the firm's capital structure is more complex,the WACC is calculated by computing the weighted average cost of only the firm's debt and equity.

Which of the Following Statements Is FALSE