Which of the Following Statements Is FALSE

question 79

Multiple Choice

Which of the following statements is FALSE?

• A) The equity cost of capital for a stock is the expected return of other investments available in the market with equivalent risk to the firm's shares.
• B) The price of a share of stock is equal to the present value of the expected future dividends it will pay.
• C) If the current stock price were less than P₀ = , it would be a negative NPV investment, and we would expect investors to rush in and sell it, driving down the stocks price.
• D) The law of one price implies that to value any security, we must determine the expected cash flows an investor will receive from owning it.

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Definitions:

Full Capacity

The maximum level of output that a company can sustain to make a product or provide a service under normal circumstances.

Operating Capacity

The total output a company can produce using its current resources, under normal working conditions.

Sales

The total amount of a company's revenues generated from the sale of goods or services.

Retained Earnings

The portion of net income that is not distributed to shareholders as dividends but is kept by the company for reinvestment in its core business or to pay debt.