Which of the Following Statements Is FALSE

question 12

Multiple Choice

Which of the following statements is FALSE?

• A)The WACC can be used throughout the firm as the company wide cost of capital for new investments that are of comparable risk to the rest of the firm and that will not alter the firm's debt-equity ratio.
• B)A disadvantage of the WACC method is that you need to know how the firm's leverage policy is implemented to make the capital budgeting decision.
• C)The intuition for the WACC method is that the firm's weighted average cost of capital represents the average return the firm must pay to its investors (both debt and equity holders)on an after-tax basis.
• D)To be profitable,a project should generate an expected return of at least the firm's weighted average cost of capital.

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Definitions:

Average Rate

The mean rate calculated over a period or series of events, often used in finance to describe average interest or return rates.

Return

The profit or loss derived from an investment over a particular period, usually expressed as a percentage.

Investment

Putting money into channels with the expectation of financial growth or profit generation.

Equipment

Tangible assets used in the operation or production process of a business, such as machinery, computers, and tools.