Which of the following is true of the change in the weighted average cost of capital of a firm?
A) A decrease in the weighted average cost of the capital increases the value of the firm.
B) An increase in the weighted average cost of the capital increases the value of the firm.
C) A decrease in the weighted average cost of the capital decreases the value of the firm.
D) A decrease in the weighted average cost of the capital increases the cash flow generated by the investments.
E) Any change in the weighted average cost of capital results in no change in the value of the firm.

Question

Quizplus · Accepted Answer

A decrease in the weighted average cost of capital, which means a lower cost of financing for the firm, results in a higher net present value (NPV) of future cash flows and increases the value of the firm. This is because the firm can invest in more profitable projects and generate higher returns on its investments with a lower cost of capital. Conversely, an increase in the weighted average cost of capital decreases the NPV of future cash flows and the value of the firm.

Which of the Following Is True of the Change in the Weighted