Question

When firms use multiple sources of capital, they need to calculate the appropriate discount rate for valuing their firm's investment cash flows as: Group of answer choices a simple average of the capital components costs a sum of the capital components costs they apply to each asset as they are purchased with their respective forms of debt or equity a weighted average of the capital components costs

Answer 1

A Weighted average of the capital components costs.

Step-by-step explanation:

The weighted average cost of capital (WACC) is, in simple language, the amount a corporation is required to reimburse on aggregate for all its security investors to fund its capital. The WACC is normally applied to by the cost of debt for the company. Crucially, it is determined by the outside market rather than by administrators.

Companies borrow capital from a variety of sources:: preferred stock, common stock, regular debt, contingent debt, transferable debt, options, shares, pension obligations, employee stock options, government grants, etc. Various securities, representing various sources of capital, are supposed to yield various returns.