Which of the Following Statements Is FALSE

question 48

Multiple Choice

Which of the following statements is FALSE?

• A)The firm's weighted average cost of capital,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 in the dividend-discount model.
• 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:

Profit

The financial gain achieved when the revenue from selling goods or services exceeds the costs associated with production and operations.

Market Rate

The prevailing price or interest rate for goods, services, or securities in a competitive marketplace.

Total Fertility Rate

The average number of children that would be born to a woman over her lifetime, given current age-specific fertility rates.

Population

The total number of people inhabiting a specific area or region.