Which One of the Following Statements Is Correct Concerning the Weighted

question 11

Multiple Choice

Which one of the following statements is correct concerning the weighted average cost of capital (WACC) ?

• A) The pre-tax rate of return on the debt is the rate that is relevant to the computation of the WACC.
• B) When computing the WACC, the weight assigned to the preferred stock is equal to the coupon rate multiplied by the par value assigned to the preferred stock.
• C) A firm's WACC will decrease as their corporate tax rate decreases.
• D) The weight of the common stock used in the computation of the WACC is based on the number of shares outstanding multiplied by the book value per share.
• E) The weight of the debt can be based on the face value of the bond issue(s) outstanding multiplied by the quoted price(s) when expressed as a percentage of the face value.

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Definitions:

Sensitivity

The quality of being quick to detect or respond to slight changes, signals, or influences.

Physiological Needs

The basic human requirements, such as food, water, and sleep, as identified in Maslow's Hierarchy of Needs.

Maslow's Hierarchy

A theory in psychology proposed by Abraham Maslow that depicts a five-tier model of human needs, arranged in a hierarchy from basic (physiological) needs to higher-level (self-actualization) needs.

Starting Point

the initial position, condition, or phase from which movement, development, or evaluation begins.