Which of the Following Statements Is FALSE

question 3

Multiple Choice

Which of the following statements is FALSE?

• A)The firm's weighted average cost of capital (WACC)denoted rwacc is the cost of capital that reflects the risk of the overall business,which is the combined risk of the firm's equity and debt.
• B)Intuitively,the difference between the discounted free cash flow model and the dividend-discount model is that in the dividend-discount model the firm's cash and debt are included indirectly through the effect of interest income and expenses on earnings in the dividend-discount model.
• C)We interpret rwacc as the expected return the firm must pay to investors to compensate them for the risk of holding the firm's debt and equity together.
• D)When using the discounted free cash flow model,we should use the firm's equity cost of capital.

Identify the true statements regarding budget balances, amendments, and fiscal measures.

Understand the concepts of equilibrium GDP, recessionary gaps, inflationary gaps, and their indicators.

Analyze the relationship between economic growth, government budget deficits/surpluses, and the national debt.

Comprehend the role and impact of automatic stabilizers in smoothing out economic cycles.

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Definitions:

Amortization

The gradual reduction of a debt or the spreading out of capital expenses for intangible assets over a specific period of time.

Bond Payable

A bond payable is a long-term liability where a borrower agrees to pay back a fixed amount of funds at a future date, along with periodic interest payments.

Interest Expense

The cost incurred by an entity for borrowed funds, represented as interest payments on debts such as loans, bonds, or lines of credit.

Discount

The excess of the face amount of bonds over their issue price or the excess of the par value of stock over its issue price.