Which of the following statements is FALSE? a. The investor can re - create the payoffs...
Which of the following statements is FALSE?
a. The investor can re - create the payoffs of unlevered equity by borrowing and using the proceeds to purchase the equity of the firm.
b. The value of the firm is determined by the present value of the cash flows from its current and future investments.
c. As long as investors can borrow or lend at the same interest rate as the firm, homemade leverage is a perfect substitute for the use of leverage by the firm.
d. When investors use leverage in their own portfolios to adjust the leverage choice made by the firm, we say that they are using homemade leverage.
Homework Answers
Answer: Option A is false
The investors cannot recreate the payoffs in this case
To recreate the payoffs of unlevered equity, it is required to buy
both debt and equity of the company
Add Answer to:
Which of the following statements is FALSE?
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