If a Typical U

question 86

Multiple Choice

If a typical U.S.company correctly estimates its WACC at a given point in time and then uses that same cost of capital to evaluate all projects for the next 10 years,then the firm will most likely

• A) become riskier over time,but its intrinsic value will be maximized.
• B) become less risky over time,and this will maximize its intrinsic value.
• C) accept too many low-risk projects and too few high-risk projects.
• D) become more risky and also have an increasing WACC.Its intrinsic value will not be maximized.
• E) continue as before,because there is no reason to expect its risk position or value to change over time as a result of its use of a single cost of capital.

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Definitions:

Blank Verse

A form of poetry that typically consists of unrhymed lines in iambic pentameter, notable for its use in English dramatic and epic poetry.

Letters

Characters or symbols used in written language to represent sounds or to form words.

Number

A mathematical object used to count, measure, and label.

Categorical Syllogism

A form of deductive reasoning consisting of three propositions that are categorical in nature, presenting a relationship between a subject and a predicate.