The weighted average cost of capital represents the minimum required rate of return on a capital-budgeting project and is found by multiplying the cost of each capital structure component by its appropriate weight and summing the terms.

Question

Quizplus · Accepted Answer

This statement accurately describes the calculation of the weighted average cost of capital (WACC). By multiplying the cost (or required rate of return) of each component of a company's capital structure (e.g. debt, equity) by its weight (proportionate share of the overall capital structure), you can determine the overall WACC for the company. This WACC represents the minimum required rate of return needed to justify investing in a new capital project, as it reflects the average cost of financing the project via debt and equity funding.

The Weighted Average Cost of Capital Represents the Minimum Required