Which of the Following Is an Important Assumption Required If

question 20

Multiple Choice

Which of the following is an important assumption required if using the WACC formula?

• A)Companies rebalance their capital structure to maintain a constant debt ratio.
• B)WACC must be used on public companies with actively traded securities.
• C)Management bonuses must be added back to free cash flows.
• D)The firm cannot issue any further debt without adjusting its WACC.

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Definitions:

Rival

Describes a good or resource that cannot be consumed by more than one person or entity at the same time without diminishing its availability to another.

Nonexclusive

A property of a good or service where one person's use does not diminish availability to others.

External Benefit

A benefit that results from an economic activity which accrues to unrelated third parties.

Third Party

An entity involved in a transaction or agreement who is not one of the principal parties.