Question

Factors affecting a firm's weighted cost of capital THE MPPRTANC Of BNOWTn A FIRAS COST OF CAPITAL Cost of capital In 2010 the Federal Reserve Board (the Fed) reported that nonfinancial companies in the United States had around 52 trillion in cash and short-term liquid assets. As the U.S. economy was still struggling, consumer spending remained low, and companies resisted in investing in new projects that would create value for their stakeholders. As the economy improves, uncertainty in the markets decreases, and companies will start investing in projects. However, the challenge of analyzing and selecting projects that would generate cash flows and returns and add value to the firm would remain.

Answer 1

Factors affecting a firm's weighted cost of capital include interest rates, expectations of future profits, and financial capital sources.

Step-by-step explanation:

There are several factors that can affect a firm's weighted cost of capital. One important factor is interest rates. Lower interest rates can stimulate investment spending, while higher interest rates can reduce it. Another factor is expectations of future profits. When businesses expect the economy to grow and see opportunities for increased profits, they are more likely to invest. Lastly, financial capital sources can also influence a firm's cost of capital. The way a business chooses to raise funds, such as through borrowing or selling stock, can impact its cost of capital.