If a Firm Earns the WACC as an Average Return

question 54

Multiple Choice

If a firm earns the WACC as an average return on its average-risk assets, then:

• A) equityholders will be satisfied, but bondholders will not.
• B) bondholders will be satisfied, but equityholders will not.
• C) all investors will earn their minimum required rate of return.
• D)the firm is investing in only positive NPV projects.

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Definitions:

Registration of Securities

The process by which securities are registered with the Securities and Exchange Commission or a state securities agency prior to being offered to the public.

Brokers and Dealers

Individuals or firms in the finance industry that buy and sell securities or commodities on behalf of themselves (dealers) or others (brokers).

Tender Offers

refer to a public proposition by a person or entity to buy shares of a company from its shareholders at a specified price for a certain period, often aiming to gain control of the company.

Proxy Solicitations

The process of requesting the authorization from shareholders to vote on their behalf in company decisions, typically at shareholder meetings.