Which of the Following Statements Is FALSE

question 1

Multiple Choice

Which of the following statements is FALSE?

• A) When using the discounted free cash flow model we should use the firm's equity cost of capital.
• B) Intuitively, the difference between the discounted free cash flow model and the dividend-discount model is that in the divided-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) The firm's weighted average cost of capital, 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.

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Definitions:

Perfect Competition

A market structure where many companies sell products that are identical to each other and no single firm can influence the market price.

Price Discrimination

A pricing strategy where a seller charges different prices for the same product or service to different customers, not based on costs but on what the seller believes each customer can afford or is willing to pay.

Single-Price Monopoly

A market structure where a single seller sells a unique product in the market and does not charge different prices to different consumers for the same product.

Monopolist's Profits

The excess earnings a monopolist achieves by being the sole provider of a product or service, which allows for pricing above marginal cost.