Which of the Following Is True About the WACC

question 99

Multiple Choice

Which of the following is true about the WACC?

• A) The WACC is the appropriate discount rate for all new projects of the firm.
• B) The optimal capital structure is the one that maximizes the WACC.
• C) The value of the firm will be maximized when the WACC is minimized.
• D) The WACC is virtually impossible to calculate for a firm with multiple divisions.
• E) Since discount rates and firm value move in the same direction, minimizing the WACC will minimize the value of the firm.

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Definitions:

Real Numbers

The set of all rational and irrational numbers, including all numbers that can be written as a decimal.

Associative Property

A mathematical principle stating that the way in which terms are grouped in an operation (addition or multiplication) does not change the result.

Addition

The mathematical operation that combines two or more quantities into a single sum.

Commutative Property

A fundamental property of addition and multiplication that states the order of the operands does not change the result, expressed as a+b=b+a or ab=ba.