cash flows should be discounted at the firm's weighted average cost of capital to find the value of its operations.

Question

Quizplus · Accepted Answer

Cash flows should be discounted at the firm's weighted average cost of capital (WACC) because it represents the minimum return that the firm needs to earn in order to satisfy its investors and creditors. Discounting at the WACC ensures that the present value of future cash flows is calculated accurately, taking into consideration both the cost of equity and the cost of debt. This helps to determine the value of the firm's operations.

Cash Flows Should Be Discounted at the Firm's Weighted Average