Consider the Following Equation for the Question(s) Below

question 76

Multiple Choice

Consider the following equation for the question(s) below.

-Which of the following statements is FALSE?

• A) If we can identify a comparison firm whose assets have the same risk as the project being evaluated, and if the comparison firm is levered, then we can use its cost of debt as the cost of capital for the project.
• B) We can calculate the cost of capital of a firm's assets by computing the weighted average of the firm's equity and debt cost of capital, which we refer to as the firm's weighted average cost of capital.
• C) The portfolio of a firm's equity and debt replicates the returns we would earn if the firm were unlevered.
• D) When evaluating any potential investment project, we must use a discount rate that is appropriate given the risk of the project's free cash flow.

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Definitions:

Accounting System

A systematic process of recording, measuring, and communicating financial information about economic entities.

Chart of Accounts

A systematic listing of all ledger account titles and numbers used in a company's accounting system.

Income Account

An account used in accounting to track revenue or income generated by a business or individual over a period of time.

Rent Expense

An account representing the cost incurred from renting premises, equipment, or other assets for business operations over a specific period.