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:

Ceilings For Earnings

Limits set on the amount of income that can be considered for certain calculations, such as social security or pension benefits.

Defined Contribution

A type of retirement plan where the employer, employee, or both make contributions on a regular basis, but the final benefits received depend on the investment's performance.

Defined Benefit

A type of pension plan where the benefits that an employee will receive upon retirement are predefined based on factors like salary and tenure.

Pension Plan

A retirement plan that requires an employer to make contributions into a pool of funds set aside for an employee's future benefit.