Which of the following statements is FALSE?
A)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.
B)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.
C)The value of the firm is determined by the present value of the cash flows from its current and future investments.
D)The investor can re-create the payoffs of unlevered equity by borrowing and using the proceeds to purchase the equity of the firm.

Question

Quizplus · Accepted Answer

The statement is false because recreating the payoffs of unlevered equity involves holding the equity without borrowing, not borrowing to purchase equity.

Which of the Following Statements Is FALSE