Suppose Acme Industries Correctly Estimates Its WACC at a Given

question 8

Multiple Choice

Suppose Acme Industries correctly estimates its WACC at a given point in time and then uses that same cost of capital to evaluate all projects for the next 10 years, then the firm will most likely

• A) become less risky over time, and this will maximize its intrinsic value.
• B) accept too many low-risk projects and too few high-risk projects.
• C) become more risky and also have an increasing WACC.Its intrinsic value will not be maximized.
• D) continue as before, because there is no reason to expect its risk position or value to change over time as a result of its use of a single cost of capital.
• E) become riskier over time, but its intrinsic value will be maximized.

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Definitions:

Decision-Making Units

Groups or individuals within an organization that have the authority and responsibility to make choices that affect the organization's operations.

Public Policy Implications

The effects or outcomes that governmental policies have on society, including economic, social, or environmental impacts.

Budget Line

A graphical representation of all possible combinations of two goods that a consumer can afford given their income and the prices of the goods, illustrating the concept of trade-offs.

Money Income

The total amount of monetary earnings received by an individual or household over a specific period of time, including wages, salaries, and other earnings.