When Using the Weighted Average Cost of Capital (WACC)to Discount

question 74

Multiple Choice

When using the weighted average cost of capital (WACC) to discount cash flows from a project, we assume the following:
I.The project's risks are the same as those of the firm's other assets and remain so for the life of the project.
II.The project supports the same fraction of debt to value as the firm's overall capital structure, and that fraction remains constant for the life of the project.
III.The cash flows from the project occur in perpetuity.

• A)I only
• B)II only
• C)I and II only
• D)I, II, and III

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Definitions:

Cost of Goods Sold

The direct costs attributable to the production of the goods sold by a company, including materials and labor.