The weighted average cost of capital can also be deﬁned as the:
A) Market weighted cost of equity ﬁnancing.
B) Rate of return based on net book value.
C) Adjusted homemade leverage rate of return.
D) Required return on a ﬁrm's overall assets.
E) Basis of M&M Proposition I.

Question

Quizplus · Accepted Answer

The weighted average cost of capital (WACC) is the required return on a firm's overall assets, which includes both debt and equity financing. It is the minimum return required by all of the firm's investors, weighted by their proportionate ownership in the firm. Therefore, option D is the correct choice. Options A, B, C, and E are not accurate definitions of the WACC.

The Weighted Average Cost of Capital Can Also Be Deﬁned