Which of the Following Statements Is False

question 46

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.
• 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:

Sophisticated Management Tools

Advanced software or methodologies used by managers to improve efficiency, productivity, or decision-making in organizations.

Project Uncertainty

The degree of unpredictability in achieving the project outcomes due to unknown variables or factors that can affect the project's scope, schedule, cost, and quality.

Ordered System

A structured arrangement of components or processes according to a specific sequence or set of rules.

Technological Uncertainty

The uncertainty faced by a project relating to the feasibility, stability, or reliability of the technology being implemented or developed.