All of the Following Statements Regarding Capital Structure Weights in the WACC

question 41

Multiple Choice

All of the following statements regarding capital structure weights in the WACC equation are correct except:

• A) The weights represent a variable financing mix.
• B) These target weights represent a mix of debt and equity that the firm will try to achieve or maintain over the planning horizon.
• C) As much as possible, the target weights should reflect the combination of debt and equity that management believes will minimize the firm's weighted average cost of capital.
• D) The firm should make an effort over time to move toward and maintain its target capital structure mix of debt and equity.
• E) All of the above statements are correct.

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Definitions:

Unemployment Rate

The fraction of the employment sector that is not employed and is earnestly looking for work.

Nominal Wage

The wage paid to employees in current currency terms, without adjustment for inflation, representing the face value of earnings.

Real Wage

The purchasing power of wages, adjusted for inflation, reflecting the actual goods and services that can be bought.

Inflation Rate

The measure of inflation through the rising cost of goods and services, which diminishes the power of currency.