Consider the Following Formula: R_wacc = R_E

question 78

Multiple Choice

Consider the following formula: r_wacc = r_E + r_D - r_Dτ_c
The terms r_E + r_D represent

• A) the after-tax WACC.
• B) the reduction due to equity financing.
• C) the before-tax WACC.
• D) the reduction due to the interest tax shield.

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Definitions:

Residual Income

Residual Income (RI) is the net income an organization generates beyond the minimum rate of return on its investments.

Operating Assets

Assets that are used in the day-to-day operations of a business to generate income, including both current and long-term assets.

Net Operating Income

A financial metric that calculates a company's profitability by subtracting operating expenses from its total revenue, excluding taxes and interest.

Residual Income

The amount of income that an individual has after all personal debts and expenses have been paid.