If the WACC Is Used in Valuing a Leveraged Buyout,the

question 45

Multiple Choice

If the WACC is used in valuing a leveraged buyout,the:

• A) WACC remains constant because of the final target debt ratio desired.
• B) flotation costs must be added to the total UCF.
• C) WACC must be recalculated as the debt is repaid and the cost of capital changes.
• D) tax shields of debt are not available because the corporation is no longer publicly traded.
• E) None of these.

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Definitions:

Substitute Physician

A medical doctor who temporarily fills in for another physician, often referred to as a locum tenens.

Locum Tenens

A person who temporarily fulfills the duties of another; specifically, a physician or clergyman acting temporarily for another.

Res Ipsa Loquitur

Latin, meaning “the thing speaks for itself,” which is also known as the doctrine of common knowledge.

Respondeat Superior

Latin, meaning “let the master answer,” a doctrine under which an employer is legally liable for the acts of his or her employees, if such acts were performed within the scope of the employee’s duties.