Asked by Kaianah Sweeting on Jun 27, 2024
Verified
The firm's cost of capital is a weighted average of the specific costs of debt and equity and preferred stock.
Weighted Average
A calculation that takes into account the varying degrees of importance of the numbers in a data set, providing a measure that reflects the significance of each value.
Specific Costs
Costs that can be directly attributed to a particular project, department, or activity.
- Comprehend the relevance of the weighted average cost of capital (WACC) and its calculation process.
Verified Answer
CU
CHRISTOPHER UNIGARROJun 30, 2024
Final Answer :
True
Explanation :
The firm's cost of capital is calculated by weighting the costs of each source of financing (debt, equity, and preferred stock) according to their respective proportions in the company's capital structure. Therefore, the cost of capital is a weighted average of each specific cost.
Learning Objectives
- Comprehend the relevance of the weighted average cost of capital (WACC) and its calculation process.
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