If a Firm Can Shift Its Capital Structure So as to Change

question 71

Multiple Choice

If a firm can shift its capital structure so as to change its weighted average cost of capital (WACC) , which of the following results would be preferred?

• A)The firm should try to decrease the WACC because such an action will increase the value of the firm.
• B)The firm should try to increase the WACC because such an action will increase the value of the firm.
• C)The firm should try to decrease the WACC because such an action will decrease the value of the firm.
• D)The firm should try to increase the WACC because such an action will decrease the value of the firm.
• E)The firm should not try to change the WACC because changing the WACC will not change the value of the firm.

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Definitions:

Individual Cash Flows

The specific instances of cash being received or expended by an entity, which can include income from sales, financing, investments, or operational activities.

Subjectively

Based on personal feelings, tastes, or opinions rather than external facts or evidence.

Capital Budgeting

The process of evaluating and selecting long-term investments that are in alignment with the goal of shareholder wealth maximization.

Standard Deviation

A statistical measure that quantifies the amount of variation or dispersion of a set of data values, often used to assess risk in investment portfolios.