Which of the Following Statements Is False

question 66

Multiple Choice

Which of the following statements is false?

• A) Holding cash has the opposite effect of leverage on risk and return.
• B) We use the market value of the firm's net debt when computing its WACC and unlevered beta to measure the cost of capital and market risk of the firm's business assets.
• C) Since the WACC does not change with the use of leverage, the value of the firm's free cash flow evaluated using the WACC does not change, and so the enterprise value of the firm does not depend on its financing choices.
• D) Even if the firm's capital structure is more complex, the WACC is calculated by computing the weighted average cost of only the firm's debt and equity.

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Definitions:

Project Life

The total duration from the initiation to the completion of a project, covering all stages of development and execution.

Accounting Break-Even

The point at which total revenues equal total expenses, and there is no profit or loss, specifically from an accounting perspective that includes non-cash expenses.

Depreciation Expense

An accounting method used to allocate the cost of a tangible asset over its useful life, reflecting wear and tear or obsolescence.

Fixed Costs

Costs that remain constant regardless of the amount of products or services a company produces, including expenditures like rent, wages, and insurance fees.