Which is true for weighted average cost of capital: Select one: a. It is minimum discount...

Which is true for weighted average cost of capital:

Select one:

a. It is minimum discount rate firms should require on any new project

b. It is the discount rate which firms should apply to all projects they undertake

c. It is rate of return shareholders expect to earn on their investment in the firm

d. It is rate of return a firm must earn on its existing assets to maintain its current value

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Expert Solution

Ans d. It is rate of return a firm must earn on its existing assets to maintain its current value

Weighted average cost of capital is rate of return a firm must earn on its existing assets to maintain its current value.

Example of WACC is:

	Investment	Tax Cost	After Tax Cost (Tax Cost*(1-Tax Rate)	Average Cost
Debt	6,00,00,000	8%	4.80%	28,80,000
Common Stock	14,60,00,000	12.00%	12.00%	1,75,20,000
	20,60,00,000	Total Cost	2,04,00,000


WACC =	20400000 / 206000000 * 100
	9.90%

jeff jeffy answered 1 year ago

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