When Using the Weighted Average Cost of Capital (WACC) to Discount

question 36

Multiple Choice

When using the weighted average cost of capital (WACC) to discount cash flows from a project we assume the following:
I. the project's risk are the same as those of firm's other assets and remain so for the life of the project.
II. the project supports the same fraction of debt to value as the firm's overall capital structure that remains constant for the life of the project.
III. the cash flows from the project is always a perpetuity.

• A) I only
• B) II only
• C) I and II only
• D) I, II and III

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Definitions:

Wages

Remuneration given to laborers for their efforts, usually measured in terms of hours worked, daily rates, or per unit of output.

Workers

Individuals engaged in a particular task or activity, especially in relation to their employment or contribution to the economy.

Marginal Product

The extra output obtained by utilizing an additional unit of a production input.

Additional Revenue

Income that a business generates from activities not related to its primary operations, often enhancing overall earnings.