WACC True or false? Use of the WACC formula assumes a. A project supports a fixed amount of debt over the project’s economic life. b. The ratio of the debt supported by a project to project value is constant over the project’s economic life. c. The firm rebalances debt each period, keeping the debt-to-value ratio constant.

Question

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Answer 1

Textbook Question

Chapter 19, Problem 1PS

WACC True or false? Use of the WACC formula assumes

a. A project supports a fixed amount of debt over the project’s economic life.
b. The ratio of the debt supported by a project to project value is constant over the project’s economic life.
c. The firm rebalances debt each period, keeping the debt-to-value ratio constant.

a)

Expert Solution

Summary Introduction

To discuss: Whether the given statement is true or false.

Explanation of Solution

Given statement:

Project supports a fixed amount of debt over the economic life of a project.

Reason:

It is not true because only the ratio of debt is constant over the economic life of a project and the amount of debt is need not to fixed.

Hence, the given statement is false.

b)

Expert Solution

Summary Introduction

To discuss: Whether the given statement is true or false.

Explanation of Solution

Given statement:

The ratio of debt supported by project to project value is fixed over the economic life of a project.

Reason:

It is true that the ratio of debt supported by project to project value is fixed over the economic life of a project.

Hence, the given statement is true.

c)

Expert Solution

Summary Introduction

To discuss: Whether the given statement is true or false.

Explanation of Solution

Given statement:

The firm will keep the debt to value ratio constant and rebalances its debt each period.

Reasons:

It is true that the firm will keep the debt to value ratio constant and rebalances its debt each period.

Hence, the given statement is true.

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Answer 2

Textbook Question

Chapter 19, Problem 1PS

WACC True or false? Use of the WACC formula assumes

a. A project supports a fixed amount of debt over the project’s economic life.
b. The ratio of the debt supported by a project to project value is constant over the project’s economic life.
c. The firm rebalances debt each period, keeping the debt-to-value ratio constant.

a)

Expert Solution

Summary Introduction

To discuss: Whether the given statement is true or false.

Explanation of Solution

Given statement:

Project supports a fixed amount of debt over the economic life of a project.

Reason:

It is not true because only the ratio of debt is constant over the economic life of a project and the amount of debt is need not to fixed.

Hence, the given statement is false.

b)

Expert Solution

Summary Introduction

To discuss: Whether the given statement is true or false.

Explanation of Solution

Given statement:

The ratio of debt supported by project to project value is fixed over the economic life of a project.

Reason:

It is true that the ratio of debt supported by project to project value is fixed over the economic life of a project.

Hence, the given statement is true.

c)

Expert Solution

Summary Introduction

To discuss: Whether the given statement is true or false.

Explanation of Solution

Given statement:

The firm will keep the debt to value ratio constant and rebalances its debt each period.

Reasons:

It is true that the firm will keep the debt to value ratio constant and rebalances its debt each period.

Hence, the given statement is true.

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Answer 3

Textbook Question

Chapter 19, Problem 1PS

WACC True or false? Use of the WACC formula assumes

a. A project supports a fixed amount of debt over the project’s economic life.
b. The ratio of the debt supported by a project to project value is constant over the project’s economic life.
c. The firm rebalances debt each period, keeping the debt-to-value ratio constant.

a)

Expert Solution

Summary Introduction

To discuss: Whether the given statement is true or false.

Explanation of Solution

Given statement:

Project supports a fixed amount of debt over the economic life of a project.

Reason:

It is not true because only the ratio of debt is constant over the economic life of a project and the amount of debt is need not to fixed.

Hence, the given statement is false.

b)

Expert Solution

Summary Introduction

To discuss: Whether the given statement is true or false.

Explanation of Solution

Given statement:

The ratio of debt supported by project to project value is fixed over the economic life of a project.

Reason:

It is true that the ratio of debt supported by project to project value is fixed over the economic life of a project.

Hence, the given statement is true.

c)

Expert Solution

Summary Introduction

To discuss: Whether the given statement is true or false.

Explanation of Solution

Given statement:

The firm will keep the debt to value ratio constant and rebalances its debt each period.

Reasons:

It is true that the firm will keep the debt to value ratio constant and rebalances its debt each period.

Hence, the given statement is true.

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Answer 4

Textbook Question

Chapter 19, Problem 1PS

WACC True or false? Use of the WACC formula assumes

a. A project supports a fixed amount of debt over the project’s economic life.
b. The ratio of the debt supported by a project to project value is constant over the project’s economic life.
c. The firm rebalances debt each period, keeping the debt-to-value ratio constant.

a)

Expert Solution

Summary Introduction

To discuss: Whether the given statement is true or false.

Explanation of Solution

Given statement:

Project supports a fixed amount of debt over the economic life of a project.

Reason:

It is not true because only the ratio of debt is constant over the economic life of a project and the amount of debt is need not to fixed.

Hence, the given statement is false.

b)

Expert Solution

Summary Introduction

To discuss: Whether the given statement is true or false.

Explanation of Solution

Given statement:

The ratio of debt supported by project to project value is fixed over the economic life of a project.

Reason:

It is true that the ratio of debt supported by project to project value is fixed over the economic life of a project.

Hence, the given statement is true.

c)

Expert Solution

Summary Introduction

To discuss: Whether the given statement is true or false.

Explanation of Solution

Given statement:

The firm will keep the debt to value ratio constant and rebalances its debt each period.

Reasons:

It is true that the firm will keep the debt to value ratio constant and rebalances its debt each period.

Hence, the given statement is true.

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Answer 5

Textbook Question

Answer 6

Textbook Question

Answer 7

a)

Expert Solution

Summary Introduction

To discuss: Whether the given statement is true or false.

Explanation of Solution

Given statement:

Project supports a fixed amount of debt over the economic life of a project.

Reason:

It is not true because only the ratio of debt is constant over the economic life of a project and the amount of debt is need not to fixed.

Hence, the given statement is false.

b)

Expert Solution

Summary Introduction

To discuss: Whether the given statement is true or false.

Explanation of Solution

Given statement:

The ratio of debt supported by project to project value is fixed over the economic life of a project.

Reason:

It is true that the ratio of debt supported by project to project value is fixed over the economic life of a project.

Hence, the given statement is true.

c)

Expert Solution

Summary Introduction

To discuss: Whether the given statement is true or false.

Explanation of Solution

Given statement:

The firm will keep the debt to value ratio constant and rebalances its debt each period.

Reasons:

It is true that the firm will keep the debt to value ratio constant and rebalances its debt each period.

Hence, the given statement is true.

Answer 8

a)

Expert Solution

Summary Introduction

To discuss: Whether the given statement is true or false.

Explanation of Solution

Given statement:

Project supports a fixed amount of debt over the economic life of a project.

Reason:

It is not true because only the ratio of debt is constant over the economic life of a project and the amount of debt is need not to fixed.

Hence, the given statement is false.

Answer 9

a)

Expert Solution

Answer 10

a)

Expert Solution

Answer 11

Expert Solution

Answer 12

Summary Introduction

To discuss: Whether the given statement is true or false.

Answer 13

Explanation of Solution

Given statement:

Project supports a fixed amount of debt over the economic life of a project.

Reason:

It is not true because only the ratio of debt is constant over the economic life of a project and the amount of debt is need not to fixed.

Hence, the given statement is false.

Answer 14

b)

Expert Solution

Summary Introduction

To discuss: Whether the given statement is true or false.

Explanation of Solution

Given statement:

The ratio of debt supported by project to project value is fixed over the economic life of a project.

Reason:

It is true that the ratio of debt supported by project to project value is fixed over the economic life of a project.

Hence, the given statement is true.

Answer 15

b)

Expert Solution

Answer 16

b)

Expert Solution

Answer 17

Expert Solution

Answer 18

Summary Introduction

To discuss: Whether the given statement is true or false.

Answer 19

Explanation of Solution

Given statement:

The ratio of debt supported by project to project value is fixed over the economic life of a project.

Reason:

It is true that the ratio of debt supported by project to project value is fixed over the economic life of a project.

Hence, the given statement is true.

Answer 20

c)

Expert Solution

Summary Introduction

To discuss: Whether the given statement is true or false.

Explanation of Solution

Given statement:

The firm will keep the debt to value ratio constant and rebalances its debt each period.

Reasons:

It is true that the firm will keep the debt to value ratio constant and rebalances its debt each period.

Hence, the given statement is true.

Answer 21

c)

Expert Solution

Answer 22

c)

Expert Solution

Answer 23

Expert Solution

Answer 24

Summary Introduction

To discuss: Whether the given statement is true or false.

Answer 25

Explanation of Solution

Given statement:

The firm will keep the debt to value ratio constant and rebalances its debt each period.

Reasons:

It is true that the firm will keep the debt to value ratio constant and rebalances its debt each period.

Hence, the given statement is true.

Answer 26

Ch. 19.A - The U.S. government has settled a dispute with...Ch. 19.A - You are considering a five-year lease of office...Ch. 19 - WACC True or false? Use of the WACC formula...Ch. 19 - WACC The WACC formula seems to imply that debt is...Ch. 19 - Prob. 3PS Ch. 19 - Prob. 4PS Ch. 19 - WACC Whispering Pines Inc. is all-equity-financed....Ch. 19 - WACC Table 19.3 shows a book balance sheet for the...Ch. 19 - WACC Table 19.4 shows a simplified balance sheet...Ch. 19 - Prob. 8PS

Solution Summary: The author explains that the ratio of debt supported by project to project value is fixed over the economic life of a project.

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