If the WACC Is Used in Valuing a LBO

question 48

Multiple Choice

If the WACC is used in valuing a LBO:

• A) the WACC remains constant because of the final target debt ratio desired.
• B) the flotation costs must be added to the total UCF.
• C) the WACC must be recalculated as the debt is repaid and the cost of capital increases.
• D) the tax shields of debt are not available because the corporation is no longer publicly traded.

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Definitions:

Net Credit Sales

The total revenue from sales made on credit minus any returns or allowances, representing the actual amount expected to be collected from customers.

Horizontal Analysis

A financial analysis technique that compares historical financial data over a series of reporting periods to identify trends and changes.

Notes Receivable

Written promise (as evidenced by a formal instrument) for amounts to be received.

Retained Earnings

Net income that the corporation retains for future use.