When Using the Weighted Average Cost of Capital (WACC) to Discount

question 42

Multiple Choice

When using the weighted average cost of capital (WACC) to discount cash flows from a project, we assume the following:

• A)The project's risks are the same as those of the firm's other assets and remain so for the life of the project.
• B)The project supports the same fraction of debt to value as the firm's overall capital structure, and that fraction remains constant for the life of the project.
• C)The project's risks are the same as those of the firm's other assets and remain so for the life of the project, and the project supports the same fraction of debt to value as the firm's overall capital structure, and that fraction remains constant for the life of the project.
• D)The project's risks are the same as those of the firm's other assets and remain so for the life of the project; the project supports the same fraction of debt to value as the firm's overall capital structure, and that fraction remains constant for the life of the project; and the cash flows from the project occur in perpetuity.

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Definitions:

β-diketone

A class of organic compounds containing two keto groups (C=O) attached to adjacent carbon atoms.

β-ketoester

A compound containing a keto group (=O) and an ester group (-COOR) separated by a carbon; it's a versatile intermediate in organic synthesis.

Conjugated Alkyne

A hydrocarbon compound that contains a conjugated system of alternating double and triple bonds within its carbon chain.

Intramolecular Aldol

A chemical reaction where an aldol condensation occurs within a single molecule, forming a cyclic compound.