Which of the Following Is NOT a Step in the WACC

question 93

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:

Leverage

The use of various financial instruments or borrowed capital, such as debt, to increase the potential return of an investment.

Stock Price

The cost of purchasing a single share of a company, which fluctuates based on market conditions and investor perceptions.

EBIT

Earnings Before Interest and Taxes represents a company's profit, encompassing all revenues and costs apart from interest and taxes.

EPS

Earnings per share. A firm’s earnings stated on a per-share outstanding basis. An important measure of business performance in the stock market.