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:

Foreign Currency Futures

Financial contracts obligating the buyer to purchase, and the seller to sell, a specified amount of foreign currency at a predetermined future date and price.

Euro

The official currency of 19 out of the 27 European Union countries, which is used as a common form of currency in international financial transactions.

British Pound

The official currency of the United Kingdom, also known as GBP (Great British Pound).

Spot Price

The current market price at which a particular asset, like a commodity or currency, can be bought or sold for immediate delivery.