Question

The weighted average cost of capital for a firm is dependent upon the firm's level of risk.
TRUE OR FALSE

It is generally better to base estimates of the WACC on book value weights of debt and equity since market values, particularly those for equity, tend to fluctuate widely.
TRUE OR FALSE

Ignoring taxes, if a firm issues debt at par, then the YTM cannot be computed.
TRUE OR FALSE

Answer 1

1. True. WACC increases as risk increases. Higher the risk higher the beta and hence cost of equity increases . Similarly cost of debt increases . Hence WACC increases.

2. False. WACC should be based on market value of debt equity in place of book value

3. False. If the bond is sold at par coupon rate is same as YTM . Hence YTM can be calculated.