Which of the following statements is FALSE?
A) A firm's weighted average cost of capital, denoted rwacc, is the cost of capital that reflects the risk of the overall business, which is the combined risk of the firm's equity and debt.
B) Intuitively, the difference between the discounted free cash flow model and the dividend-discount model is that in the divided-discount model, a firm's cash and debt are included indirectly through the effect of interest income and expenses on earnings in the dividend-discount model.
C) We interpret rwacc as the expected return a firm must pay to investors to compensate them for the risk of holding the firm's debt and equity together.
D) When using the discounted free cash flow model, we should use a firm's equity cost of capital.
Answer: D
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Finch Corporation (E & P of $400,000) distributed machinery ($10,000 adjusted basis, $150,000 fair market value) to its sole shareholder, Kathleen. The property is subject to a $50,000 mortgage, which Kathleen assumed. How much dividend income does Kathleen recognize as a result of the distribution and what is her basis in the machinery?
What will be an ideal response?
Regarding the statement of stockholders' equity, which of the following statements is incorrect?
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A. 50 B. 25 C. 75 D. 15
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