Is each of the following statements true or false? Explain your answers.

a. Using the same risk-adjusted discount rate to discount all future cash flows ignores the fact that the more distant cash flows are often more risky than cash flows occurring sooner.

b. The cost of capital, or WACC, is not the correct discount rate to use for all projects undertaken by a firm.

c. If you can borrow all of the money you need for a project at 6 per- cent, the cost of capital for this project is 6 percent.

d. The best way to obtain the cost of debt capital for a firm is to divide the interest expense on the income statement by the interest-bearing debt on the balance sheet.

e. To estimate the cost of equity for a privately held company, one can plug an average of equity betas from publicly traded firms in the same industry into the equation of the market line.

AppendixLO1