Consider the Following Equation for the Question(s) Below

question 66

Multiple Choice

Consider the following equation for the question(s) below.

-Which of the following statements is TRUE?

• A) Holding cash has the opposite effect of leverage on risk and return.
• B) We use the market value of a firm's net debt when computing its WACC and unlevered beta to measure the cost of capital and market risk of the firm's business assets.
• C) Since the WACC does not change with the use of leverage, the value of a firm's free cash flow evaluated using the WACC does not change, and so the enterprise value of the firm does not depend on its financing choices.
• D) Even if a firm's capital structure is more complex, the WACC is calculated by computing the weighted average cost of only the firm's debt and equity.

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Definitions:

Incidental Damages

Additional expenses incurred by one party as a result of another party's breach of contract.

Breach of Contract

The failure, without legal excuse, to perform any promise or fulfill any term of a contract or agreement.

Compensatory Damages

Financial compensation awarded to a plaintiff to offset losses or injuries incurred due to the defendant's actions or negligence.

Nonbreaching Party

The party in a contract who has not violated the agreement terms.