Which of the following is an important assumption required if using the WACC formula?
A)Companies rebalance their capital structure to maintain a constant debt ratio.
B)WACC must be used on public companies with actively traded securities.
C)Management bonuses must be added back to free cash flows.
D)The firm cannot issue any further debt without adjusting its WACC.

Question

Quizplus · Accepted Answer

The WACC formula assumes that companies rebalance their capital structure to maintain a constant debt ratio. This means that the debt-to-equity ratio remains constant over time, and any changes in capital structure are intentional and not due to market fluctuations.

Which of the Following Is an Important Assumption Required If