In Order to Use the WACC to Evaluate a Future

question 79

Multiple Choice

In order to use the WACC to evaluate a future project's flows, which of the following must hold?

• A) The project will be financed with the same proportion of debt and equity as the firm.
• B) The systematic risk of the project is the same as the overall systematic risk of the firm.
• C) The project must be viable.
• D) a and b above.

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Definitions:

Common Shares

Equity securities that represent ownership in a company, providing voting rights and entitling shareholders to a share of the company's profits through dividends.

Intangible Assets

Non-physical assets such as copyrights, patents, trademarks, and goodwill that have value to a business.

Valuation Method

A technique used to determine the fair value of assets or liabilities, considering market conditions, income potential, and historical costs.

Net Capital Assets

The total value of a company's fixed assets less any accumulated depreciation, representing the actual worth of these assets in the company's balance sheet.