How does the valuation of a company vary from the valuation of a project using WACC?

• A. Book values are used as the weights for WACC when valuing a company.
• B. Debt and equity weights are set equal for WACC when valuing a company.
• C. A terminal value is included in the valuation process for a company but generally not for a project.
• D. Debt is not adjusted for taxes when computing the WACC for a company valuation.
• E. The WACC must be set equal to RM when valuing a company.

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Why does MM Proposition I, without taxes, not hold in the presence of corporate taxation?

• A. Bondholders require higher rates of return when their interest payments are taxed.
• B. Dividends are no longer relevant when taxes are introduced.
• C. A levered firm will pay less tax than the identical firm unlevered.
• D. The cost of equity increases with leverage.
• E. The pretax cost of debt increases when taxes are considered.