A company that has both debt and equity in its capital structure will use its we

Question

A company that has both debt and equity in its capital structure will use its weighted average cost of capital (WACC) as its discount rate. Based on your understanding of the weighted average cost of capital, complete the following statements In general, the lower the risk of a fim as perceived by its existing and potential investors, the lower is the firm's cost of capital. The calculation of the weighted average cost of capital (WACC) should be on the cost of the next dollar of financial capital to be raised. before-tax after-tax Unless operating in a rapidly changing economic environment, firms will generally calculate their current weighted average cost of capital True or False: Although firms tend to raise their capital in large, lumpy amounts, their weighted average cost of capital (WACC) and the capital investment that they are evaluating assume that the project wil be financed with the same proportion of funds contained in their target capital structure. O True False True or False: The weighted average cost of capital represents the maximum return that a firm should earn on new investments exhibiting the firm's average risk level O True O False O Type here to search Address

Explanation / Answer

The calculation of weighted average cost of capital should be on after-tax cost of the next dollar of financial capital to be raised.

Unless operating in a rapidly changing economic environment, firms will generally calculate their current weighted average cost of capital annually or semianually

We assume the preoject will be financed with the same proportion of funds contained in their target capital sturcture - True

The weighted average cost of capital represents the maximum return that a firm should earn on new investments exhibiting the firm's average risk level - False

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