Consider the following equation for the question(s) below.

-Which of the following statements is FALSE?
A) The levered equity return equals the unlevered return plus an extra "kick" due to leverage.
B) By holding a portfolio of a firm's equity and its debt, we can replicate the cash flows from holding its levered equity.
C) The cost of capital of levered equity is equal to the cost of capital of unlevered equity plus a premium that is proportional to the market value debt-equity ratio.
D) If a firm is unlevered, all of the free cash flows generated by its assets are available to be paid out to its equity holders.

Question

Consider the following equation for the question(s) below.
 
-Which of the following statements is FALSE?
A) The levered equity return equals the unlevered return plus an extra "kick" due to leverage. 
B) By holding a portfolio of a firm's equity and its debt, we can replicate the cash flows from holding its levered equity. 
C) The cost of capital of levered equity is equal to the cost of capital of unlevered equity plus a premium that is proportional to the market value debt-equity ratio. 
D) If a firm is unlevered, all of the free cash flows generated by its assets are available to be paid out to its equity holders.

Quizplus · Accepted Answer

B) By holding a portfolio of a firm's equity and its debt, we can replicate the cash flows from holding its unlevered equity.

Consider the Following Equation for the Question(s) Below