Question
If a typical U.S. company correctly estimates its WACC at a given point in time and then uses that same cost of capital to evaluate
If a typical U.S. company 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:
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| become riskier over time, but its intrinsic value will be maximized. |
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| become less risky over time, and this will maximize its intrinsic value. |
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| accept too many low-risk projects and too few high-risk projects. |
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| become more risky and also have an increasing WACC. Its intrinsic value will not be maximized. |
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| 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. |
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Accounting Information For Business Decisions
Authors: Billie Cunningham, Loren A. Nikolai, John Bazley, Marie Kavanagh, Geoff Slaughter, Sharelle Simmons
2nd Edition
9780170253703
