Which of the following is the overall return the firm must earn on its existing assets to maintain the value of the stock?
Correct answer: C. WACC (Weighted Average Cost of Capital)
- A. IRR (Internal Rate of Return)
- B. MIRR (Modified Internal Rate of Return)
- C. WACC (Weighted Average Cost of Capital)
- D. AAR (Average Accounting Return)
Explanation
WACC is the blended required return demanded by all providers of capital, so the firm must earn at least this return on its existing assets to preserve stock value. IRR and MIRR evaluate individual projects, not the firm's overall required return.
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About Business Finance
Business finance explains how organisations plan, obtain and use money while balancing risk, return and liquidity. Topics include financial statements, time value of money, budgeting, working capital, capital structure, sources of finance, investment appraisal and cost of capital. Capital budgeting evaluates long-term projects, whereas working capital manages day-to-day operations.
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