Which of the following statements is true?

Question

Quizplus · Accepted Answer

A firm should utilize a weighted average cost of capital for evaluating investment decisions rather than an arithmetic average cost of capital because it takes into account the proportion of each type of capital and their respective costs, which provides a more accurate measure of the true cost of capital. The other statements are either partially true or incorrect. The level of general economic conditions is one factor to consider when determining the appropriate cost of capital, but it is not the only factor. For an average firm capitalized with 65% equity, both an arithmetic average cost of capital and a weighted average cost of capital can be appropriate depending on the specific circumstances.

Which of the Following Statements Is True