If a fiRm Recalculates Its WACC Based Solely on Lower

question 352

Multiple Choice

If a firm recalculates its WACC based solely on lower growth expectations for the firm, the new WACC will be:

• A) The same as the previous WACC because growth expectations do not affect WACC.
• B) Lower than the previous WACC because the cost of debt will decline.
• C) Lower than the previous WACC because the cost of equity will decline.
• D) Higher than the previous WACC because the cost of debt will increase.
• E) Higher than the previous WACC because the cost of equity will increase.

---

Definitions:

Yerkes-Dodson Law

A psychological principle that asserts there is an optimal level of arousal for the best performance of a task: too little arousal can lead to underperformance, while too much can lead to mistakes.

Simple Tasks

Activities or tasks that require a minimal amount of cognitive or physical effort to complete.

Industrial/Organizational Psychologists

Professionals who apply psychological principles and research methods to improve the workplace environment, productivity, and employee-related issues.

Psychotherapy

A therapeutic treatment involving psychological techniques to improve mental health and well-being.