Which of the Following Statements Is False

question 35

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:

Insurance Companies

Organizations that provide risk management by compensating for financial losses in exchange for premium payments.

Private Information

Information that is not publicly available and may give an individual or business a competitive advantage.

Hidden Problems

Issues or complications within a system or product that are not immediately obvious or visible.

Buyers

Individuals or organizations that purchase goods or services for personal use, resale, or production.