Consider the following equation for the project WACC with a fixed debt schedule: r_wacc = r_U - dτ_c[rD + f(r_U - r_D) ]
The term f in this equation represents

Question

Consider the following equation for the project WACC with a fixed debt schedule: r_wacc = r_U - dτ_c[rD + f(r_U - r_D)] The term f in this equation represents

Quizplus · Accepted Answer

The term f represents a measure of the permanence of the debt level, which reflects the extent to which financing decisions are influenced by long-term factors rather than short-term factors. Therefore, option B is the best choice. Option A is incorrect because there is no mention of an annual adjustment percentage to the amount of debt. Option C is incorrect because there is no information given on the dollar amount of debt outstanding. Option D is incorrect because the debt-to-value ratio is not explicitly mentioned in the equation.

Consider the Following Equation for the Project WACC with a Fixed