Which of the Following Statements Is False

question 25

Multiple Choice

Which of the following statements is false?

• A) The firm's weighted average cost of capital (WACC) denoted r_wacc is the cost of capital that reflects the risk of the overall business, which is the combined risk of the firm's equity and debt.
• B) Intuitively, the difference between the discounted free cash flow model and the dividend-discount model is that in the divided-discount model the firm's cash and debt are included indirectly through the effect of interest income and expenses on earnings in the dividend-discount model.
• C) We interpret r_wacc as the expected return the firm must pay to investors to compensate them for the risk of holding the firm's debt and equity together.
• D) When using the discounted free cash flow model we should use the firm's equity cost of capital.

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Definitions:

Minority Worker

An employee who belongs to a racial, ethnic, or cultural minority within the broader workforce.

Pleasure Principle

A concept in psychoanalytic theory suggesting that individuals seek pleasure and avoid pain in order to satisfy biological and psychological needs.

Reality Principle

A concept in psychoanalytic theory referring to the ability of the mind to assess the external world and act upon it accordingly, often in contrast to the pleasure principle.

Ego

In psychoanalytic theory, the part of the personality that mediates between the desires of the id and the constraints of the real world.