Which of the following statements is FALSE?
A)An investor who would like more leverage than the firm has chosen can lend and add leverage to his or her own portfolio.
B)If securities are fairly priced, then buying or selling securities has a net present value (NPV)of zero and, therefore, should not change the value of a firm.
C)The future repayments that the firm must make on its debt are equal in value to the amount of the loan it receives up front.
D)As long as the firm's choice of securities does not change the cash flows generated by its assets, the capital structure decision will not change the total value of the firm or the amount of capital it can raise.

Question

Quizplus · Accepted Answer

Option A is false because it suggests an investor can add leverage to their own portfolio to match their preference, which is true, but it incorrectly implies that this is a reason for the firm's choice of leverage not affecting the investor's choice, which is not directly related to the firm's leverage decision. The statement mixes concepts of personal leverage with firm leverage decisions, which are related but distinct. The correct interpretation is that investors can adjust their personal leverage independently of the firm's decisions, but this does not negate the effects of the firm's capital structure choices on its value or the cost of capital.

Which of the Following Statements Is FALSE