If a ﬁrm recalculates its WACC based solely on lower growth expectations for the ﬁrm, the new WACC will be:

Question

Quizplus · Accepted Answer

If lower growth expectations lead to a decrease in the firm's beta, then the cost of equity will decline. This would lead to a lower WACC. The cost of debt is not directly affected by growth expectations, so option B and D are incorrect. Growth expectations could potentially affect other factors that influence WACC, such as the risk-free rate or market risk premium, but the question specifies that the change is based solely on lower growth expectations. Therefore, option A is also incorrect. Option E is also incorrect because a decrease in beta would lead to a decrease in the cost of equity, not an increase.

If a ﬁRm Recalculates Its WACC Based Solely on Lower