If a Firm Can Shift Its Capital Structure So as to Change

question 71

Multiple Choice

If a firm can shift its capital structure so as to change its weighted average cost of capital (WACC) , which of the following results would be preferred?

• A)The firm should try to decrease the WACC because such an action will increase the value of the firm.
• B)The firm should try to increase the WACC because such an action will increase the value of the firm.
• C)The firm should try to decrease the WACC because such an action will decrease the value of the firm.
• D)The firm should try to increase the WACC because such an action will decrease the value of the firm.
• E)The firm should not try to change the WACC because changing the WACC will not change the value of the firm.

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Definitions:

Decimal Place

A position of a number to the right of the decimal point, indicating fractions of a base unit.

Percentages

A mathematical concept that represents a number or ratio as a fraction of 100.

Horizontal Analysis

A method of financial analysis in which figures in financial statements are compared across several periods to identify trends or changes over time.

Dollar Changes

Refers to the difference in value or cost in U.S. dollars of an item, investment, or project over time.