Under Normal Circumstances, the Weighted Average Cost of Capital (WACC)

question 8

Multiple Choice

Under normal circumstances, the weighted average cost of capital (WACC) is used as the firm's required rate of return because:

• A)as long as the firm's investments earn returns greater than its WACC, the value of the firm will not decrease.
• B)any returns less than the WACC will cover the fixed costs associated with the capital and provide excess returns to the firm's stockholders.
• C)it is the average of all the interest rates on the firm's existing debt.
• D)it is an indication of the returns the firm expects to earn in the future from investing in capital budgeting projects.
• E)it represents the average return the firm currently earns on the funds it has invested in assets.

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Definitions:

Stramenopiles

A diverse group of eukaryotic organisms that includes diatoms, brown algae, and water molds, characterized by the presence of straw-like hairs on their flagella at some stage in their life cycle.

Water Molds

Water molds, or Oomycetes, are a group of filamentous, fungus-like organisms living in water or damp environments, often causing diseases in plants and fish.

Flagellum

A slender, whip-like appendage that enables many protozoa, bacteria, and spermatozoa to swim.

Microvilli

Minute projections of the plasma membrane that increase the surface area of the cell; found mainly in cells concerned with absorption or secretion, such as those lining the intestine or the kidney tubules.