Which of the following statements is FALSE?
A) If the debt-equity ratio changes over time, the risk of equity - and, therefore, its cost of capital - will change as well.
B) The FTE method can offer an advantage when calculating the value of equity for the entire firm, if the firm's capital structure is complex and the market values of other securities in the firm's capital structure are not known.
C) The FTE approach does not have the same disadvantage associated with the APV approach. We don't need to compute the project's debt capacity to determine interest and net borrowing before we can make the capital budgeting decision.
D) The WACC and APV methods compute the firm's enterprise value, so that a separate valuation of the other components of the firm's capital structure is needed to determine the value of equity.
C
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Clemente Inc. incurs the following costs to produce 10,000 units of a subcomponent:
Direct materials $8,400 Direct labor 11,250 Variable overhead 12,600 Fixed overhead 16,200 An outside supplier has offered to sell Clemente the subcomponent for $2.85 a unit. If Clemente accepts the offer, by how much will net income increase (decrease)? a) $(8,850) b) $(2,850) c) $3,750 d) $19,950
Which of the following is classified as casualty insurance?
A) workers compensation insurance B) fire insurance C) marine insurance D) life insurance