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Question of the Week – Corporate Finance

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    • Avatar of AdaptPrepAdaptPrep
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        • Undecided
        06 Jun 2018 at 8:14 am
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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.
      • Avatar of AdaptPrepAdaptPrep
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          09 Jun 2018 at 7:40 pm
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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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