Which of the Following Statements Is FALSE

question 100

Multiple Choice

Which of the following statements is FALSE?

• A) We can calculate the cost of capital of the firm's assets by computing the weighted average of the firm's equity and debt cost of capital, which we refer to as the firm's weighted average
• Cost of capital.
• B) If we can identify a comparison firm whose assets have the same risk as the project being evaluated, and if the comparison firm is levered, then we can use its equity cost of capital as the cost of capital for the project.
• C) When evaluating any potential investment project, we must use a discount rate that is appropriate given the risk of the project's free cash flow.
• D) The portfolio of a firm's equity and debt replicates the returns we would earn if the firm were unlevered.

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Definitions:

Debt

Money owed by one party to another, under conditions of repayment often including interest.

Book Value

The net value of a company's assets minus its liabilities, often used to assess a company's worth from a financial statement perspective.

Capital Accounts

Financial records that show the capital contributions, withdrawals, and earnings of owners in a company.

Cost of Capital

The rate of return a company must offer investors to entice them to invest, reflecting the risk of the investment alongside the return.