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Which statement about the cost of capital (WACC) do you think is the most correct? Select one: a
Which statement about the cost of capital (WACC) do you think is the most correct?
Select one:
a.
Once a company has calculated the cost of its capital (e.g 10%), it is suitable for evaluating all the company's projects
b.
Implementation of the Cost of Capital fails if the cash flows change signs several times during the project lifetime
c.
Increase in the cost of capital should also increase the value of the company
d.
The company should strive to lower the cost of capital
Expert Solution
The Correct answer is D
The Weighted average cost of capital is the Weighted cost that the company pays to finance the capital, It composes of the Cost of Debt, Cost of equity, and the cost of preferred stock.
The Company should aim to lower the cost of capital because it will lead to Higher value of the company as the Finance cost will be less.
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