Which Statement Is FALSE Regarding WACC and Its Components

question 19

Multiple Choice

Which statement is FALSE regarding WACC and its components?

• A) The cost of debt is usually less than the cost of equity.
• B) The WACC should be used as the discount rate for all projects that the firm considers.
• C) For an all-equity firm,the cost of equity equals the WACC.
• D) The WACC may increase if the firm seeks external financing for a project.

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Definitions:

Fixed Expenses

Costs that remain constant in total over a specified period, regardless of changes in the level of activity or volume of output.

Unit Variable Cost

The variable cost incurred to produce one unit of a product, such as materials or labor.

Net Operating Income

The profitability of a company's core business operations, calculated as gross profit minus operating expenses, excluding interest and taxes.

Sales Commissions

A portion of sales revenue paid to sales personnel as a reward for their sales achievements.