Which of the Following Statements Is FALSE

question 87

Multiple Choice

Which of the following statements is FALSE?

• A)The imperfections in the CAPM may be critical in the context of capital budgeting and corporate finance,where errors in estimating the cost of capital are likely to be far more important than small discrepancies in the project cash flows.
• B)To estimate the expected market risk premium,we can look at the historical average excess return of the market over the risk-free interest rate.
• C)The highest beta stocks have tended to underperform what the CAPM predicts.
• D)Given an assessment of an index's future cash flows,we can estimate the expected return of the market by solving for the discount rate that is consistent with the current level of the index.

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Definitions:

Level of Activity

The volume or scale of operation in a business, often influencing costs and efficiency, such as the number of units produced or sold.

Cost of Unused Capacity

The costs incurred for not utilizing production or service capacity to its fullest potential.

Period Expense

Costs that are not directly related to production and are charged as expenses in the period they occur.

Predetermined Overhead Rate

A rate calculated by dividing estimated overhead costs by an estimated activity base, used to allocate overhead costs to products or services.