For Purposes of Computing the WACC, If the Book Value

question 106

Multiple Choice

for purposes of computing the WACC, if the book value of equity exceeds the market value of equity, then:

• A)the book value of equity should be used.
• B)the book value of equity less retained earnings should be used.
• C)the market value of equity should be used.
• D)the market value of equity less retained earnings should be used.

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Definitions:

Option

A financial derivative that gives the buyer the right, but not the obligation, to buy or sell an asset at a specified price on or before a certain date.

Underlying Asset

Refers to an asset (e.g., stocks, bonds, commodities) on which a derivative's value is based.

European Option

An option that can only be exercised at the end of its life, at its expiration date, unlike American options which can be exercised at any time up to the expiration date.

Expiration Date

The specific date on which an option contract becomes void and the rights to exercise it cease.