Suppose Acme Industries Correctly Estimates Its WACC at a Given

question 75

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.

---

Definitions:

Shareholders' Meeting

An official gathering of the shareholders of a company to discuss the company's affairs, make decisions, and vote on corporate issues.

Cumulative Voting

A voting system used in corporate elections that allows shareholders to accumulate their votes and allocate them to one or several candidates, enhancing minority shareholders' chances of representation.

Revised Act

Refers to an updated or amended legislative act or statute.

Incorporation Statutes

Laws that govern how companies can be legally established, regulated, and dissolved.