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:

Passive Transport

Membrane-crossing mechanism that requires no energy input.

Facilitated Diffusion

A process of passive transport, with the aid of integral membrane proteins, allowing substances to move across cell membranes without energy expenditure.

Receptor-Mediated Endocytosis

A cellular process by which cells internalize molecules (like hormones, nutrients, and proteins) by the inward budding of plasma membrane vesicles containing proteins with receptor sites specific to the molecules being internalized.

Allosteric Regulation

The regulation of an enzyme's activity through the binding of a molecule at a site other than the enzyme's active site, causing a change in its shape.