Which of the Following Statements Is FALSE

question 51

Multiple Choice

Which of the following statements is FALSE?

• A)In the real world,specific projects should differ only slightly from the average investment made by the firm.
• B)We can estimate rU for a new project by looking at single-division firms that have similar business risks.
• C)The project's equity cost of capital depends on its unlevered cost of capital,rU,and the debt-equity ratio of the incremental financing that will be put in place to support the project.
• D)Projects may vary in the amount of leverage they will support-for example,acquisitions of real estate or capital equipment are often highly levered,whereas investments in intellectual property are not.

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Definitions:

Paid-in Capital

Paid-in capital represents the funds raised by a company through the sale of stock to shareholders, above the par value of the shares.

Treasury Stock

Shares that were once issued and fully paid, but have been bought back by the issuing company and are held in the company’s treasury.

Treasury Stock

Shares of a company's own stock that it has reacquired from shareholders and holds in its own treasury.

Cost Method

An accounting method in which investments are recorded at their original purchase cost, without recognizing changes in market value.