Which of the following statements regarding the weighted average cost of capital is incorrect?
A) The weighted average cost of capital considers the rate of return required by long-term creditors.
B) The weighted average cost of capital considers the rate of return required by investors.
C) The weighted average cost of capital represents the minimum rate of return required by investors and long-term creditors.
D) There is an inverse relationship between the weighted average cost of capital and business risk.

Question

Quizplus · Accepted Answer

The weighted average cost of capital (WACC) represents the average rate of return required by all of a company's security holders, including both debt and equity. It does not have an inverse relationship with business risk; rather, as business risk increases, the WACC typically increases because investors demand higher returns for taking on more risk.

Which of the Following Statements Regarding the Weighted Average Cost