Asked by
Akshat Goyal
on Nov 07, 2024
Verified
Which of the following is true about the WACC?
A) The WACC is the appropriate discount rate for all new projects of the firm.
B) The optimal capital structure is the one that maximizes the WACC.
C) The value of the firm will be maximized when the WACC is minimized.
D) The WACC is virtually impossible to calculate for a firm with multiple divisions.
E) Since discount rates and firm value move in the same direction, minimizing the WACC will minimize the value of the firm.
WACC
WACC stands for Weighted Average Cost of Capital, a calculation used to assess the average cost of a company's financing sources including equity, debt, and other securities.
Optimal Capital Structure
The best mix of debt, equity, and other financings that maximizes a company's market value while minimizing its cost of capital.
Discount Rate
The rate of interest utilized to calculate the current value of future cash flows within discounted cash flow analysis.
- Gain an understanding of the repercussions of financial leverage on the Weighted Average Cost of Capital and the firm's equity expenses.
- Acknowledge the impact of the static theory of capital structure on assessing firm value and establishing the optimal capital structure.
Verified Answer
KS
Learning Objectives
- Gain an understanding of the repercussions of financial leverage on the Weighted Average Cost of Capital and the firm's equity expenses.
- Acknowledge the impact of the static theory of capital structure on assessing firm value and establishing the optimal capital structure.