Which of the Following Statements Is FALSE

question 12

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:

Price Level

A gauge for the mean cost of products and services across an economy at a given time.

Short-Run Aggregate Supply

Represents the total supply of goods and services that firms in an economy plan on selling during a short time period, based on the current price level.

Aggregate Demand

The total demand for goods and services within a particular market or economy at a given price level and period.

Equilibrium Output

The level of output where the quantity of goods produced equals the quantity of goods consumed, resulting in a stable economy.