Which of the Following Statements Is FALSE

question 9

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)When using the discounted free cash flow model, we should use the firm's equity cost of capital.
• 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)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.

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Definitions:

Ordinal Scale

A ranking scale used to measure variable where the order of values is significant, but the difference between values is not uniform.

Rank Order

A method of arranging data points based on their value, from highest to lowest or vice versa.

Measurement

The process or the result of determining the size, length, or amount of something, usually according to a set of standard units.

Nominal Scale

A classification system where numerical or non-numerical data are categorized without a natural order or ranking.