Which of the following statements is false?
A) In perfect capital markets, buying and selling securities is a zero-NPV transaction, so it should not affect firm value.
B) Making positive-NPV investments will create value for the firm's investors, whereas saving the cash or paying it out will not.
C) In perfect capital markets, if a firm invests excess cash flows in financial securities, the firm's choice of payout versus retention is irrelevant and does not affect the initial share price.
D) After adjusting for investor taxes, there remains a substantial tax advantage for the firm to retain excess cash.

Question

Quizplus · Accepted Answer

This statement is false. Retaining excess cash may result in tax liability for investors, which could reduce the after-tax return on investment. Therefore, after adjusting for investor taxes, there may not be a significant tax advantage for the firm to retain excess cash.

Which of the Following Statements Is False