All of the Following Statements Regarding Capital Structure Weights in the WACC

question 94

Multiple Choice

All of the following statements regarding capital structure weights in the WACC equation are correct except:

• A)The weights represent a specific intended financing mix.
• B)These target weights represent a mix of debt and equity that the firm will try to achieve or maintain over the planning horizon.
• C)As much as possible, the target weights should reflect the combination of debt and equity that management believes will maximize the firm's weighted average cost of capital.
• D)The firm should make an effort over time to move toward and maintain its target capital structure mix of debt and equity.
• E)All of the above statements are correct.

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Definitions:

Illusory Promise

A statement that appears to be a promise but is too vague or lacks commitment to be legally binding and enforceable as a contract.

Promissory Estoppel

A legal principle preventing a party from withdrawing a promise if the other party has reasonably relied on that promise to their detriment.

False Pretenses

The act of knowingly making untrue statements or deceiving others to obtain goods, money, or services unlawfully.

Mutual Exchange

An agreement where two parties exchange goods, services, or other considerations of value, with each party benefiting from the transaction.