Which of the following statements is FALSE? A)If the firm has no debt, then r_waccequals 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.

Question

Quizplus · Accepted Answer

The statement that if a firm has no debt, its cost of capital equals the risk-free rate of return is false. The cost of capital for a firm with no debt (all equity financed) is the cost of equity, which includes a risk premium above the risk-free rate to compensate for the business and financial risks.

Which of the Following Statements Is FALSE