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You're trying to value a firm using pro-forma balance sheets and income statements. The current date is 1 July 2021 and the most recent set
You're trying to value a firm using pro-forma balance sheets and income statements. The current date is 1 July 2021 and the most recent set of past financial statements were just released for the year ended 30 June 2021. You've found the firm free cash flows (FFCF or cash flow from assets, including tax shields) and the current WACC after tax which is 6% pa. The current (market) debt-to-assets ratio is 50%. You're wondering if the WACC after tax should change in future years? In your forecast balance sheets, the book and market debt-to-assets ratios increase every year from the most recent past balance sheet until your most distant forecast balance sheet. Take interest tax shields into account but ignore the costs of financial distress and signalling factors. Over future years, the WACC after tax should: Select one: O a. Rise. b. Remain constant. c. Fall. d. More information is required
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