Why Is an Accurate WACC So Important When Evaluating a New

question 18

Multiple Choice

Why is an accurate WACC so important when evaluating a new project? Assume a negative cash outflow at Time 0 and positive project cash flows thereafter.

• A)The coupon rate on new bonds issued to fund the project will be set equal to WACC.
• B)The project WACC will replace the firm WACC as the discount rate for all future projects.
• C)The project's accept/reject decision will be based on the NPV calculated using that WACC.
• D)The return to shareholders will be limited by the WACC.
• E)The firm can only maintain or increase its current value if the project WACC exceeds the project's internal rate of return.

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Definitions:

Reduce Risks

Strategies or actions taken to lower the probability of loss or the impact of adverse outcomes.

Product Development

Product development is the process of bringing a new product to market, including the conception, design, and manufacture of products that meet consumer needs and preferences.

Market Penetration

A measure of the amount of sales or adoption of a product or service compared to the total theoretical market for that product or service.

More Resources

Refers to an increase in the availability of materials, finances, or other assets that are necessary for achieving objectives or completing tasks.