In the second step of the 3-step process to adjust WACC when debt ratios change, one should use the following formula: r_E = r + (r − r_D)× (D/V).

Question

Quizplus · Accepted Answer

The formula provided is incorrect and does not accurately represent the steps or calculations involved in adjusting the Weighted Average Cost of Capital (WACC) for changes in debt ratios. The process of adjusting WACC typically involves recalculating the cost of equity and debt based on the new capital structure, and then using these updated costs to compute the new WACC.

In the Second Step of the 3-Step Process to Adjust