Which of the following statements is FALSE?
A)The equity cost of capital for a stock is the expected return of other investments available in the market with equivalent risk to the firm's shares.
B)The price of a share of stock is equal to the present value of the expected future dividends it will pay.
C)If the current stock price were less than P0 = ,it would be a negative NPV investment,and we would expect investors to rush in and sell it,driving down the stock's price.
D)The law of one price implies that to value any security,we must determine the expected cash flows an investor will receive from owning it.

Question

Which of the following statements is FALSE?
A)The equity cost of capital for a stock is the expected return of other investments available in the market with equivalent risk to the firm's shares. 
B)The price of a share of stock is equal to the present value of the expected future dividends it will pay. 
C)If the current stock price were less than P0 = ,it would be a negative NPV investment,and we would expect investors to rush in and sell it,driving down the stock's price. 
D)The law of one price implies that to value any security,we must determine the expected cash flows an investor will receive from owning it.

Quizplus · Accepted Answer

If the current stock price were less than its NPV (as calculated using the required rate of return), it would be a positive NPV investment, not a negative one. Investors would rush to buy it, driving up the price. Therefore, statement C is false. The other statements are true.

Which of the Following Statements Is FALSE