Securities does not change the cash flows generated

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Reference no: EM131513257

1. As long as a firm’s choice of securities (debt vs equity) does not change the cash flows generated by its assets, the capital structure decision will not change the total value of the firm or the amount of capital it can raise.

True

False

2. It is not correct to discount the cash flows of a levered firm with the cost of equity of the un-levered firm because _______

A. leverage decreases the risk of equity of the firm

B. leverage changes the unlevered cost of equity

C. leverage increases the risk of the equity of the firm

D. cost of debt decreases in this setting

3. With perfect capital markets, a firm's WACC is dependent on its capital structure and is equal to its equity cost of capital only if the firm is unlevered.

True

False

Reference no: EM131513257

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