In the Absence of Default

question 10

Multiple Choice

In the absence of default:

• A)the present value of a project's future unlevered cash flows,discounted at the cost of equity,is identical to the present value of cash flows discounted at the cost of debt.
• B)the present value of a project's future unlevered cash flows,discounted at the WACC,is identical to the present value of cash flows to debt holders discounted at the cost of debt.
• C)the present value of a project's future levered cash flows,discounted at the WACC,is identical to the present value of cash flows discounted at the cost of equity.
• D)the present value of a project's future unlevered cash flows,discounted at the WACC,is identical to the present value of cash flows discounted at the cost of equity.

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Definitions:

Operating Expenses

Costs incurred in the day-to-day operations of a business, excluding costs related to producing goods or services.

Supplies Expense

The cost associated with materials or goods required to operate a business but not directly tied to the products sold.

Rent Expense

This outlines the cost incurred by a business to use property or equipment as part of its operational activities for a certain period.

Wages Expense

The total cost incurred by a company to compensate its employees, including salaries, wages, and other forms of employee benefits.