Suppose a firm uses a single source of capital to fund a project.Which of the following statements is correct?

Question

Quizplus · Accepted Answer

Even if a firm uses a single source of capital to fund a project, it should still be evaluated using the firm's WACC (Weighted Average Cost of Capital) because it reflects the overall cost of capital for the firm, taking into account all sources of financing. Using the cost of a single source or the average cost of previously raised capital may not accurately reflect the firm's actual cost of capital and lead to incorrect investment decisions. Using book values of the funding source would also not provide an accurate measure of the actual cost of capital. Therefore, the best option is to use the firm's WACC for evaluation.

Suppose a Firm Uses a Single Source of Capital to Fund