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:

Accumulated Depreciation

The total depreciation expense that has been recorded for an asset over its service life, reducing its original cost to its current book value.

Residual Value

The estimated value that an asset will have at the end of its useful life, often considered in depreciation calculations.

Depreciable Asset

An asset subject to depreciation, which allows for the allocation of its cost over its useful life, reflecting wear and tear, or obsolescence.

Asset Benefits

The economic benefits that accrue to the owner of an asset over its useful life, including cash flows and tax advantages.