The Weighted Average Cost of Capital (WACC) is:
The cost of equity alone
The cost of debt alone
The average cost of all sources of finance weighted by their proportion in capital structure
The maximum rate of return required by investors
View Answer
Correct Answer: C — The average cost of all sources of finance weighted by their proportion in capital structure
Explanation:
The correct answer is C: The average cost of all sources of finance weighted by their proportion in capital structure.
WACC represents the average rate a company is expected to pay to all its security holders to finance its assets. It is calculated by weighting the cost of each component (equity, debt, preference shares) by its proportion in the total capital structure. WACC is used as the discount rate in NPV calculations.