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:

Dependent Variable

The factor in a model or experiment predicted to vary as a result of modifications in the independent variables.

Seasonal Index

A measure that quantifies the predictable fluctuation in activity or values according to the season or time of the year.

Forecasted Sales

Predicted sales figures based on analysis of market trends, historical sales data, and other relevant factors, used by businesses for planning.

Trend Equation

A mathematical formula that models the underlying trend in a dataset, often used to make predictions about future values based on current and past data.