Suppose Acme Industries Correctly Estimates Its WACC at a Given

question 8

Multiple Choice

Suppose Acme Industries correctly estimates its WACC at a given point in time and then uses that same cost of capital to evaluate all projects for the next 10 years, then the firm will most likely

• A) become less risky over time, and this will maximize its intrinsic value.
• B) accept too many low-risk projects and too few high-risk projects.
• C) become more risky and also have an increasing WACC.Its intrinsic value will not be maximized.
• D) continue as before, because there is no reason to expect its risk position or value to change over time as a result of its use of a single cost of capital.
• E) become riskier over time, but its intrinsic value will be maximized.

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Definitions:

Supply Of Domestic Currency

The total amount of a country's currency available within the economy, which can be influenced by the central bank's monetary policy and other factors.

Supply Curve

A graph showing the relationship between the price of a good and the quantity of the good that suppliers are willing to sell.

Exchange Rate

The value of one currency for the purpose of conversion to another, indicating how much one currency is worth in terms of another.