Question

what is meant by measuring the weighted average cost of capital on a marginal basis? group of answer choices it is the average cost of all the capital that a company has raised, including both debt and equity. it is a way to measure the cost on a weighted average basis of both new and historic capital it is a way to measure only the cost of internal capital it is the cost of capital for a new project that is financed with a mix of debt and equity. it is the cost of raising additional capital, taking into account the company's capital structure. it is a way to measure only the cost of historic capital

Answer 1

Measuring the weighted average cost of capital on a marginal basis refers to the cost of obtaining additional capital, taking into account the company's debt and equity mix, and is important for investment decisions.

Step-by-step explanation:

The concept of measuring the weighted average cost of capital (WACC) on a marginal basis refers to the cost of raising additional capital, considering the company's capital structure. It looks specifically at the incremental cost of obtaining one more unit of capital after accounting for the mix of debt and equity financing the company uses.

Unlike simply calculating the WACC for all capital raised, the marginal WACC is relevant for new investment decisions as it provides an estimate of the return required on additional funds, or a new project, to be profitable given the current cost structure of the company.