The Weighted Average Cost of Capital (WACC)declines as More of the Lowest

question 39

True/False

The weighted average cost of capital (WACC)declines as more of the lowest cost component is added.What limits a firm from using nearly all debt is that as the debt-to-assets ratio rises,the absolute interest expense gets very large.The large interest expense reduces income and results in a debt-to-assets ratio limit even though the WACC continues to decline.

---

Definitions:

Units Sold

The total number of a product that a company sells within a specific time period, often used to measure sales performance.

Periodic LIFO

Periodic LIFO (Last-In, First-Out) is an inventory valuation method used in accounting that assumes the most recently purchased items are sold first, and ending inventory costs are determined at the end of the accounting period.

Ending Inventory

The total value of all inventory a company has in its possession at the end of a reporting period, vital for calculating cost of goods sold.

Cost Flow Assumption

An accounting method used to value inventory and determine the cost of goods sold, based on the assumed flow of goods.