Which of the Following Statements Is False

question 26

Multiple Choice

Which of the following statements is false?

• A) From a theoretical standpoint,the capital weights used to calculate the WACC should be based on the market values of the different securities.However,if a firm's book value weights are close to its market value weights,book value weights can be used as proxies.
• B) Generally,only long-term debt is included in the calculation of the WACC,because the WACC is used for capital budgeting purposes,which includes long-term assets,and those assets are financed with long-term capital.
• C) The first break point a firm encounters in capital budgeting is for retained earnings,unless a firm has zero or negative net income.
• D) The weighted average cost of capital will change whenever a break point occurs.
• E) Answers a and b are both false.

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Definitions:

Purchases

Purchases refer to the acquisition of goods or services by a company for use in its operations or for resale to customers.

Unearned Rent

Income received by a landlord for rent that has not yet been earned because the period of occupancy has not yet occurred.

Liability

A financial obligation or debt that an individual or company owes to another party.

Asset

An economic resource owned or controlled by an entity that is expected to provide future economic benefits.