The weighted-average cost of capital (WACC)equals ________.
A) the after-tax average cost of all the long-term and short-term funds
B) the after-tax average cost of all the long-term funds
C) the pre-tax average cost of all the short-term funds
D) the pre-tax average cost of all the long-term and short-term funds

Question

Quizplus · Accepted Answer

The WACC is the average cost of all of the long-term funds (such as bonds and equity) used to finance a company's operations. It is typically expressed as a percentage, and takes into account both the cost of debt and the cost of equity. Short-term funding sources, such as bank loans or commercial paper, are not typically included in the calculation of a company's WACC as they are not considered long-term sources of funding. Additionally, the cost of capital used in the calculation of WACC is typically the pre-tax cost of debt and the expected return on equity, before taxes are considered. Once calculated, the WACC can be used to assess the feasibility of new projects, mergers and acquisitions, and other investment opportunities for a company.

The Weighted-Average Cost of Capital (WACC)equals ________