The weighted-average cost of capital:

Question

Quizplus · Accepted Answer

The weighted-average cost of capital (WACC) takes into account all of a company's sources of capital and the proportions in which they are used, so it blends the returns required by all suppliers of funds (such as creditors and shareholders) (A). Additionally, the weights used in the calculation reflect the company's capital structure, giving more weight to sources of capital that make up a larger percentage of the total capital structure (B). Finally, the WACC is typically between the cost of debt and the cost of equity, since debt is usually less risky for investors and thus carries a lower required return than equity, but the cost of debt can only be lower than the WACC if there are tax benefits (C). Therefore, all of these statements are true, making D the best answer.

The Weighted-Average Cost of Capital