The weighted average cost of capital is the minimum required return that must be earned on additional investment if firm value is to remain unchanged.

Question

Quizplus · Accepted Answer

This statement is true. The weighted average cost of capital (WACC) represents the average cost of all the capital sources that a company uses to finance its operations, such as debt, equity, and preferred stock. By using a weighted average, the WACC reflects the proportion of each type of capital used, and the cost associated with each type. Companies need to earn a return on investment equal to or higher than the WACC to maintain or increase their value.

The Weighted Average Cost of Capital Is the Minimum Required