If we assume that EBIT is constant, the value of a firm is maximized by minimizing the weighted average cost of capital.

Question

Quizplus · Accepted Answer

The value of a firm is maximized by minimizing the weighted average cost of capital (WACC). This is because WACC is the discount rate used to calculate the present value of future cash flows, and a lower WACC will result in a higher present value. Assuming EBIT is constant, minimizing the WACC will lead to a higher value of the firm.

If We Assume That EBIT Is Constant, the Value of a Firm