Which of the Following Is True About the WACC

question 202

Multiple Choice

Which of the following is true about the WACC?

• A) The WACC is the appropriate discount rate for all new projects of the firm.
• B) The optimal capital structure is the one that maximizes the WACC.
• C) The value of the firm will be maximized when the WACC is minimized.
• D) The WACC is virtually impossible to calculate for a firm with multiple divisions.
• E) Since discount rates and firm value move in the same direction, minimizing the WACC will minimize the value of the firm.

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Definitions:

Solvency Ratios

Measures of the ability of the company to survive over a long period of time.

Profitability Ratios

Financial metrics used to assess a business's ability to generate earnings relative to its revenue, assets, equity, and other factors.

Comprehensive Income

Represents the total change in equity for a business enterprise during a period from transactions and other events from non-owner sources.

Unrealized Loss

A loss that results from holding onto an asset that has decreased in value, but has not actually been sold yet.