Which of the Following Is Not a Step in the WACC

question 46

Multiple Choice

Which of the following is not a step in the WACC valuation method?

• A) Compute the value of the investment, including the tax benefit of leverage, by discounting the free cash flow of the investment using the WACC.
• B) Compute the weighted average cost of capital.
• C) Determine the free cash flow of the investment.
• D) Adjust the WACC for the firm's current debt/equity ratio.

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Definitions:

Adjusting Entry

A financial document alteration that ensures accounting records and statements reflect accurate and real numbers, applied before the financial statements' finalization.

Revenue Recognition

The accounting principle that determines the specific conditions under which revenue is recognized or accounted for.

Expense Recognition (Matching)

A principle of accrual accounting that matches expenses with revenues in the period in which they are incurred to generate those revenues, ensuring accurate financial reporting.

Prepaid Expenses

Costs incurred upfront for the future receipt of goods or services.