Consider the following equation for the project WACC with a fixed debt schedule: rwacc = rU - dτc[rD + f(rU - rD)]
The term f in this equation represents:
A)the annual adjustment percentage to the amount of debt.
B)a measure of the permanence of the debt level.
C)the dollar amount of debt outstanding.
D)the debt-to-value ratio.

Question

Quizplus · Accepted Answer

The term f in the equation represents the adjustment for the permanence of the debt level. It takes into account the fact that the debt level is not constant over time and adjusts for the impact of changes in the debt level on the weighted average cost of capital (WACC).

Consider the Following Equation for the Project WACC with a Fixed