Which of the Following Statements Is FALSE

question 19

Multiple Choice

Which of the following statements is FALSE?

• A)If the firm has no debt, then r_wacc equals the risk-free rate of return.
• B)Because the firm's free cash flow is equal to the sum of the free cash flows from the firm's current and future investments, we can interpret the firm's enterprise value as the total net present value (NPV)that the firm will earn from continuing its existing projects and initiating new ones.
• C)The long-run growth rate g_FCF is typically based on the expected long-run growth rate of the firm's revenues.
• D)When using the discounted free cash flow model, we forecast the firm's free cash flow up to some horizon, together with some terminal (continuation)value of the enterprise.

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Definitions:

Shutdown

The short-term decision by a firm to cease production due to operating at a loss, where total revenue is not covering variable costs.

Implicit Costs

These refers to the opportunity costs that are not directly paid or incurred but represent the foregone benefits from using resources in a particular way.

Economic Profit

The difference between total revenue and total costs, including both explicit and implicit costs, indicating the financial success exceeding the opportunity cost of resources.

Accounting Profit

The net income for a company calculated by subtracting total expenses from total revenues according to accounting principles, not including implicit costs.