A Firm That Uses Its Weighted Average Cost of Capital

question 51

Multiple Choice

A firm that uses its weighted average cost of capital as the required return for all of its investments will:

• A)maintain a constant value for its shareholders.
• B)increase the risk level of the firm over time.
• C)make the best possible accept and reject decisions related to those investments.
• D)find that its cost of capital declines over time.
• E)accept only the projects that add value to the firm's shareholders.

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Definitions:

Consideration

In contract law, the benefit, interest, or value that must be exchanged between parties engaging in a contract.

Modification

An alteration or amendment to an existing contract or agreement without changing its fundamental essence.

Rescission

the legal act of voiding a contract and returning all parties to their pre-contractual states.

Basis for Rejecting

The rationale or grounds for refusing to accept or deny something, such as an application, offer, or claim.