Which of the Following Statements Is FALSE

question 43

Multiple Choice

Which of the following statements is FALSE?

• A)Because the WACC incorporates the tax savings from debt,we can compute the levered value of an investment,which is its value including the benefit of interest tax shields given the firm's leverage policy,by discounting its future free cash flow using the WACC.
• B)The WACC incorporates the benefit of the interest tax shield by using the firm's before-tax cost of capital for debt.
• C)When the market risk of the project is similar to the average market risk of the firm's investments,then its cost of capital is equivalent to the cost of capital for a portfolio of all of the firm's securities;that is,the project's cost of capital is equal to the firm's weighted average cost of capital (WACC).
• D)A project's cost of capital depends on its risk.

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Definitions:

Dominant Strategy

A Dominant Strategy is a game theory concept where a player's best course of action remains unchanged regardless of what the opponent does.

Nash Equilibrium

A concept in game theory where each player's strategy is optimal given the strategies of other players, leading to a situation where no participant can benefit by changing strategies while the others remain constant.

Maximin Strategy

A decision-making strategy used in game theory and economics where the player seeks to maximize their minimum payoff, accounting for the worst-case scenario.

Dominant Strategy

In game theory, a strategy that always results in the most favorable outcome for a player, regardless of what the opposition does.