Which of the Following Statements Is False

question 7

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 closest 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:

Price Elasticity

A measure in economics to show how the quantity demanded of a good or service responds to a change in its price.

Marginal Cost

The additional expenditure required to produce one more unit of a product or service.

Profit-Maximizing

The strategy or practice of adjusting production and distribution to achieve the highest possible profit from operations.

Marginal Revenue Function

A calculation that shows how much extra revenue a firm will receive from selling one more unit of a product or service.