Which of the following statements about weighted average cost of capital is not true?
A) It is the marginal cost of funds
B) It measures profits and returns and is preferred by managers.
C) It is calculated as the weighted average of the costs of debt, preferred equity, and common equity.
D) Shareholders compare it to return on a project to determine if their money is best being used by the company or should be paid out to shareholders.

Question

Quizplus · Accepted Answer

The weighted average cost of capital (WACC) is primarily used as a financial metric to evaluate the cost of a company's financing and investment opportunities, rather than directly measuring profits and returns. It is a tool for decision-making rather than a measure of profitability preferred by managers.

Which of the Following Statements About Weighted Average Cost of Capital