Which of the Following Statements Is False

question 16

Multiple Choice

Which of the following statements is false?

• A) The long-run growth rate g_FCF is typically based on the expected long-run growth rate of the firm's revenues.
• B) Because the firm's free cash flow is equal to the sum of the free cash flows from the firm's current and future investments, we can interpret the firm's enterprise value as the total NPV that the firm will earn from continuing its existing projects and initiating new ones.
• C) If the firm has no debt then r_wacc = the risk-free rate of return.
• D) When using the discounted free cash flow model, we forecast the firm's free cash flow up to some horizon, together with some terminal (continuation) value of the enterprise.

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Definitions:

Systematic Risk

The risk inherent to the entire market or market segment, also known as market risk, which cannot be eliminated through diversification.

Capital Allocation Line

A line on a graph that shows the rates of return of portfolios that optimally combine risk and return for an investor.

Risk-averse Investors

Individuals who prefer lower returns with known risks rather than higher returns with unknown risks.

Optimal Risky Portfolio

An investor’s best combination of risky assets; the combination that maximizes the Sharpe ratio.