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Question of the Week: Level 2 - Corporate Finance

The weighted average cost of capital on any given day for a company would not be given by the weighted average of the:

Question of the Week: Level 2 - Corporate Finance 9 votes

A. current costs of financing for each source of financing used.
11% 1 vote
B. incurred costs of financing for each source of financing used.
66% 6 votes
C. marginal costs of financing for each source of financing used.
22% 2 votes

Comments

  • MarkMeldrumMarkMeldrum OntarioPosts: 52 Associate
    The correct answer is Option B. 

    The weighted average cost of capital (WACC) is given by the weighted average of the marginal costs of financing for each type of financing used; what it costs the company to raise additional capital using the specified mixture of debt and equity.

    Further, this is the current cost:  what it would cost the company today.

    What it cost in the past is not relevant.

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