Which One of the Following Is a Correct Statement Regarding

question 21

Multiple Choice

Which one of the following is a correct statement regarding a firm's weighted average cost of capital (WACC) ?

• A)The WACC will decrease when the tax rate decreases for all firms that utilise debt financing.
• B)A reduction in the risk level of a firm will tend to increase the firm's WACC.
• C)A 5 per cent increase in a firm's debt-equity ratio will tend to increase the firm's WACC.
• D)The WACC can be used as the required return for all new projects with similar risk to that of the existing firm.
• E)An increase in the market risk premium will tend to decrease a firm's WACC.

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Definitions:

Owners' Claims

The financial interest or claims that business owners have in the assets of their company, often calculated as equity.

Assets

Economic resources owned or controlled by a business or individual, expected to produce value or benefit in the future.

Investing Activities

Financial actions related to acquiring or disposing of long-term assets and other investments.

Long-term Borrowing

Debt obligations or loans that are due to be repaid over a period longer than one year, often used for large capital investments.