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Which of the following statements is FALSE ? The cost of equity is the return that equity investors require on their investment in the firm.

Which of the following statements is FALSE?

The cost of equity is the return that equity investors require on their investment in the firm.

The cost of equity can be found by either the dividend growth approach or the Security Market Line (CAPM) approach.

The cost of debt is the return that lenders require on the firm's debt.

If the firm has preferred stock in its capital structure, the cost of preferred stock should be included in the cost of capital.

Book value capital structure weights should be used to calculate the WACC instead of market value weights.

You are considering an investment which has the following after-tax cash flows. If you require a 5-year payback period, should you take the investment?

Year 0 1 2 3 4 5 6
Cash Flow -$30,000 $10,000 $5,000 $5,000 $7,500 $10,000 $20,000

Yes, the payback is 3.00 years.

Yes, the payback is 3.75 years.

Yes, the payback is 4.25 years.

No, the payback is 5.25 years.

No, the payback is 5.75 years.

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