Which of the Following Is an Important Assumption Required If

question 20

Multiple Choice

Which of the following is an important assumption required if using the WACC formula?

• A)Companies rebalance their capital structure to maintain a constant debt ratio.
• B)WACC must be used on public companies with actively traded securities.
• C)Management bonuses must be added back to free cash flows.
• D)The firm cannot issue any further debt without adjusting its WACC.

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Definitions:

Multilink

A type of suspension system in vehicles that features multiple links or arms for improved handling and comfort.

4WD

Four-wheel drive, a system that powers all four wheels of a vehicle simultaneously for better traction.

Linear Rate

In the context of springs, a linear rate refers to a constant rate of compression or extension, meaning the force required to compress or extend the spring is consistent throughout its movement.

Variable Rate

An interest or finance charge rate that can change over the period of the loan or credit agreement, often tied to an index or benchmark.