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:

Credits

Recognition or acknowledgment for something received or accomplished, often used in finance to denote money received or a decrease in liabilities.

Liabilities

Liabilities are financial obligations or debts that a company owes to others, which need to be settled over time through the transfer of economic benefits including money, goods, or services.

Common-Size Financial Statement

A financial statement that includes a percentage breakdown of each item.

Income Statement

A financial statement that reports a company's financial performance over a specific accounting period, detailing revenues, expenses, and net income.