Question

Companies can use the WACC to see if the investment projects available to them are worthwhile to undertake. How can the WACC be both an average cost and a marginal cost? What tools are available to us to determine the relationship between ROIC and WACC?

Answer 1

Yes, companies can use the wacc to see if the investment projects available to them are worthwhile to undertake.

WACC weight average cost of capital is cost to provider of finance. It accert you recover cost of fund invested but if (IRR) internal rate of return or ROIC Return on invested capital is more than WACC that company earnings move the just cost of capital.

WACC is weighted cost of Verious means of finance involved in capital of a project or company or it is mathematically calculated at total cost of finance of project devide hy total value of fund invested so in other words we can say it is average cost.

Further it is marginal cost. Because at least cost of capital is to be recover to make project financially viable. If cost of capital is not recover than this distroy value of company. In this case you have more financial cost expenses than income cause negative welth.

Further tools that determine relationship between ROIC and wacc

Npv = if net present value is positive then ROIC is more than WACC and if npv id negative than ROIC is less than WACC.