Which of These Statements Is True Regarding Calculating Weights for WACC

question 32

Multiple Choice

Which of these statements is true regarding calculating weights for WACC?

• A) If we are calculating WACC for the firm, then equity, preferred stock and debt would be the entire book value of each source of capital.
• B) If we are calculating WACC for the firm, then equity, preferred stock and debt would be the entire market value of each source of capital.
• C) If we are calculating WACC for a project, then equity, preferred stock and debt would be the entire book value of each source of capital.
• D) If we are calculating WACC for a project, then equity, preferred stock and debt would be the entire market value of each source of capital.

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Definitions:

Absorption Costing

An accounting method that includes all manufacturing costs - direct materials, direct labor, and both variable and fixed overheads - in the cost of a product.

Variable Costing Income (VCI)

An accounting method that includes only variable costs—costs that change with production level—in calculating net income.

Full Costing Income (FCI)

A method of accounting that allocates all fixed and variable costs to products, operations or projects to determine profitability.

Consolidated Accounts

Financial statements that represent the combined financial activities of a parent company and its subsidiaries.