Question

Which of the following statements is (are) most likely FALSE:

I. If Total Assets = Shareholders Equity, then FCFF = FCFE

II. If Total Assets = Shareholders Equity, then WACC = Cost of Equity

III. If Total Assets > Shareholders Equity, then WACC > Cost of Equity

a) I

b) II

c) III

d) I, II

e) I, II, III

Answer 1

4n option (c) is correct. le if Total assets > Shareholder's equity, then WACC) Cost of equity. The above statement is most likely false, as the form is financed with some proportion of debt (since Total assers > Shareholder's equity) Giren that debt finanung is likely cheaper than the Cost of equity, and WALL takes into account the weighted avenge cost of debt and equity (weighted by the proportion of dett & equity financing) WACC will likely be lower than the cost of equity. Statement 1 & 1 are equity there is no debt cost of equity true, be cause if Total assets = Shareholders financing. Thus FCFF = FLFE & WALL =