Asked by Beatriz Sarai on Jun 24, 2024
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If a firm will use debt as well as equity funds next year, the ____ is the correct discount rate to use in the capital budgeting models (NPV, etc.)
A) component cost of equity
B) weighted average cost of capital
C) historical cost of funds
D) All of the above are correct
Discount Rate
Discount Rate is the interest rate used in discounted cash flow (DCF) analysis to determine the present value of future cash flows.
Weighted Average Cost
A calculation of the overall cost of goods that are sold, based on the proportionate cost of all items in inventory, factoring in both the cost and the quantity of each item.
Capital Budgeting Models
Techniques used to evaluate the financial attractiveness of investment projects, including Net Present Value (NPV), Internal Rate of Return (IRR), and Payback Period.
- Acquire knowledge on the determination and implementation of the Weighted Average Cost of Capital (WACC).
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Learning Objectives
- Acquire knowledge on the determination and implementation of the Weighted Average Cost of Capital (WACC).
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