CFA CFA Level 1 Question of the Week – Corporate Finance

Question of the Week – Corporate Finance

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    When companies calculate net present value for potential investment opportunities, they typically use the weighted average cost of capital. Which of the following assumptions is least necessary for this calculation to be valid?

    • The project’s systematic risk should be at the company average.
    • The company’s target capital structure will remain constant over time.
    • The company does not pay dividends.
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    Necessary assumptions to use the
    WACC include:

    • The project’s systematic risk should be at the
      company average.
    • The company’s target capital structure will
      remain constant over time.

    Dividend policy does not directly
    affect this, as the company’s cost of capital is the same regardless of
    distribution method.

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