Question

Thermacorp's weighted average cost of capital is 13.5. If the average WACC in the heating and cooling industry is 19, Thermacorp can be said to be earning

A) above normal economic performance.
B) above normal accounting performance.
C) below normal economic performance.
D) below normal accounting performance.

Answer 1

Thermacorp's WACC is below the average WACC in the heating and cooling industry, indicating below normal economic performance.

Step-by-step explanation:

Thermacorp's weighted average cost of capital is 13.5, while the average WACC in the heating and cooling industry is 19. Therefore, Thermacorp's WACC is below the industry average. This indicates that Thermacorp is earning below normal economic performance compared to other companies in the industry.

Example: If a competitor in the heating and cooling industry has a WACC of 19 and Thermacorp has a WACC of 13.5, it means that the competitor is earning a higher return on investment than Thermacorp.