The weighted average cost of capital (WACC) includes:
A) the required return on equity and required return on underlying company assets.
B) the cost of any debt and the cost of equity.
C) the cost of any debt and required return on underlying company assets.
D) none of the above.

Question

Quizplus · Accepted Answer

The weighted average cost of capital (WACC) represents the average cost of the firm’s capital that includes both the cost of equity and the cost of debt. WACC is calculated by multiplying the cost of each capital component by its proportional weight and then summing the results. Therefore, option B is the correct answer as it includes the cost of any debt and the cost of equity. Option A and C are incorrect as they do not include the cost of debt and required return on underlying company assets respectively. Option D is also incorrect as it does not provide any accurate information about the components of WACC.

The Weighted Average Cost of Capital (WACC) Includes