Which of the Following Statements Is FALSE

question 2

Multiple Choice

Which of the following statements is FALSE?

• A) Even two firms in the same industry selling the same types of products, while similar in many respects, are likely to be of different size or scale.
• B) In the method of comparables, we estimate the value of a firm based on the value of other, comparable firms or investments that we expect will generate very similar cash flows in the future.
• C) Consider the case of a new firm that is identical to an existing publicly traded company. If these firms will generate identical cash flows, the Law of One Price implies that we can use the value of the existing company to determine the value of the new firm.
• D) A valuation multiple is a ratio of some measure of a firm's scale to the value of the firm.

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Definitions:

Volume Variance

The difference between the expected volume of production and the actual volume, which impacts the allocation of fixed costs in some costing systems.

Direct Labor Rate Variance

The difference between the actual costs of labor and the expected (or standard) costs, based on the hourly wage rates times the number of hours worked.

Direct Labor Time Variance

The difference between the actual hours worked by employees at the standard rate and the expected hours at the standard rate, for manufacturing a product.

Total Cost Variance

The difference between the budgeted or standard cost of production and the actual cost incurred.