Consider the Following Equation for the Question(s)below

question 57

Multiple Choice

Consider the following equation for the question(s) below:
E + D = U = A
-Which of the following statements is FALSE?

• A)Even if the firm's capital structure is more complex, the WACC is calculated by computing the weighted average cost of only the firm's debt and equity.
• B)Since the WACC does not change with the use of leverage, the value of the firm's free cash flow evaluated using the WACC does not change, and so the enterprise value of the firm does not depend on its financing choices.
• C)We use the market value of the firms' net debt when computing its WACC and unlevered beta to measure the cost of capital and market risk of the firm's business assets.
• D)Holding cash has the opposite effect of leverage on risk and return.

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Definitions:

Confidence Level

The proportion of times that an estimating procedure will produce intervals that contain the parameter of interest if the same population is sampled repeatedly.

Precision

The degree to which repeated measurements under unchanged conditions show the same results.

Confidence Interval

A range of values, derived from sample statistics, that is likely to contain the value of an unknown population parameter, expressed with a certain level of confidence.

Confidence Level

The probability, expressed as a percentage, that a parameter lies within a specified range of values, indicating the reliability of an estimate.