If a Firm Recalculates Its WACC Based Solely on Lower

question 74

Multiple Choice

If a firm recalculates its WACC based solely on lower growth expectations for the firm, the new WACC will be:

• A) The same as the previous WACC because growth expectations do not affect WACC.
• B) Lower than the previous WACC because the cost of debt will decline.
• C) Lower than the previous WACC because the cost of equity will decline.
• D) Higher than the previous WACC because the cost of debt will increase.
• E) Higher than the previous WACC because the cost of equity will increase.

---

Definitions:

Transform Faulting

A geological process in which tectonic plates slide horizontally past each other along transform faults, often causing earthquakes.

Red Sea

A seawater inlet of the Indian Ocean, lying between Africa and Asia, known for its unique marine life and geological features.

Subduction

The process along a convergent plate-tectonic boundary in which an oceanic lithospheric plate descends beneath the overriding plate.

Tectonics

Earthquakes, volcanoes, and other processes that deform Earth’s crust and mantle; syn. tectonic activity.