The cost of capital is the same as the WACC for projects with equal risk to the ﬁrm as a whole.

Question

Quizplus · Accepted Answer

The Weighted Average Cost of Capital (WACC) represents the minimum return that a company must earn on its existing assets to satisfy its creditors, owners, and other providers of capital. The WACC is based on the specific risk of each component of capital, including debt, preferred stock, and equity. Therefore, if a project has the same risk as the entire firm, its cost of capital should be equal to the WACC.

The Cost of Capital Is the Same as the WACC