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Which of the following statement is false? Question options:

The company cost of capital is the correct discount rate only for investments that have the same risk as the company’s overall business.

The company cost of capital is the cost of debt of the firm.

One calculates the weighted average cost of capital (WACC), on an after-tax basis, as: WACC = (rDebt) (1 – TC ) (D/V) + (rEquity) (E/V), where: rDebt is the required rate of return on the debt, rEquity is the required rate of return on the equity, TC is the company marginal tax rate, and V (Total Market Value) = D (Market Value of Debt) + E (Market Value of Equity).

Firms with high operating leverage tend to have higher asset betas.


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