Suppose Acme Industries Correctly Estimates Its WACC at a Given

question 8

Multiple Choice

Suppose Acme Industries correctly estimates its WACC at a given point in time and then uses that same cost of capital to evaluate all projects for the next 10 years, then the firm will most likely

• A) become less risky over time, and this will maximize its intrinsic value.
• B) accept too many low-risk projects and too few high-risk projects.
• C) become more risky and also have an increasing WACC.Its intrinsic value will not be maximized.
• D) continue as before, because there is no reason to expect its risk position or value to change over time as a result of its use of a single cost of capital.
• E) become riskier over time, but its intrinsic value will be maximized.