When Weighted Average Cost of Capital (WACC) Is Used to Value

question 52

Multiple Choice

When weighted average cost of capital (WACC) is used to value a levered firm, the interest tax shield is:

• A) ignored.
• B) considered by deducting the interest payment from the cash flows.
• C) automatically considered because the after-tax cost of debt is used in the WACC formula.
• D) none of the above

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Definitions:

Valence

In psychology, the intrinsic attractiveness or averseness of an event, object, or situation.

Frustration-Regression Principle

A concept from the field of psychology suggesting that when an individual's progress toward a goal is blocked, they may regress to previously held behaviors.

Hygiene Factor

A concept in Herzberg's motivation theory, referring to factors that can cause dissatisfaction if missing but do not necessarily motivate if increased or improved.

Interpersonal Relations

The way in which two or more people interact and communicate with each other in various settings.