Suppose That an Analyst Incorrectly Calculates WACCs Using Book Values

question 41

True/False

Suppose that an analyst incorrectly calculates WACCs using book values of debt and equity instead of market values. The resulting WACC estimates will generally be too high.

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Definitions:

Absorption Costing

A product costing approach that incorporates all costs of manufacturing, including both fixed and variable, into the product's price.

Absorption Costing

An inventory pricing approach that incorporates all costs associated with manufacturing, including both variable and fixed expenses, into the product's cost.

Variable Costing

An accounting method that includes only variable production costs in the cost of goods sold and treats fixed overhead expenses as period costs.

Direct Materials

Raw materials directly used in the manufacturing of a product that can be directly traced to that product.