12. Which of the following statements is FALSE? A) The Law of One Price implies that leverage will affect the total value of the firm under perfect capital market conditions. B) In the absence of taxes or other transaction costs, the total cash flow paid out to all of a firm's security holders is equal to the total cash flow generated by the firm's assets. C) Investors in levered equity require a higher expected return to compensate for its increased risk. D) In a perfect capital market, the total value of a firm is equal to the market value of the total cash flows generated by its assets and is not affected by its choice of capital structure.
12. Which of the following statements is FALSE? A) The Law of One Price implies that leverage will affect the total value of the firm under perfect capital market conditions. B) In the absence of taxes or other transaction costs, the total cash flow paid out to all of a firm's security holders is equal to the total cash flow generated by the firm's assets. C) Investors in levered equity require a higher expected return to compensate for its increased risk. D) In a perfect capital market, the total value of a firm is equal to the market value of the total cash flows generated by its assets and is not affected by its choice of capital structure.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:12. Which of the following statements is FALSE?
A) The Law of One Price implies that leverage will affect the
total value of the firm under perfect capital market conditions.
B) In the absence of taxes or other transaction costs, the total
cash flow paid out to all of a firm's security holders is equal to
the total cash flow generated by the firm's assets.
C) Investors in levered equity require a higher expected return to
compensate for its increased risk.
D) In a perfect capital market, the total value of a firm is equal
to the market value of the total cash flows generated by its assets
and is not affected by its choice of capital structure.
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