Which of the following is true about the WACC? The WACC is the appropriate discount rate for all new projects of the firm. The optimal capital structure is the one that maximizes the WACC. The value of the firm will be maximized when the WACC is minimized. The WACC is virtually impossible to calculate for a firm with multiple divisions Since discount rates and firm value move in the same direction, minimizing the WACC will minimize the value of the firm.

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Senorita

Social Studies

27 July, 14:26

Which of the following is true about the WACC? The WACC is the appropriate discount rate for all new projects of the firm. The optimal capital structure is the one that maximizes the WACC. The value of the firm will be maximized when the WACC is minimized. The WACC is virtually impossible to calculate for a firm with multiple divisions Since discount rates and firm value move in the same direction, minimizing the WACC will minimize the value of the firm.

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Kassandra Bernard · Answer 1

The value of the firm will be maximised when the WACC is minimised.

Explanation:

The calculation of a firms cost of capital when all the categories of the capital is proportionately weighted is called weighted average cost of capital (WACC). While calculating WACC common stock, sources of capital, bonds, stocks and other long term debts are taken into account. WACC increases with the increase in the rate of return on equity and beta. If there is an increase in valuation and risk there is a decrease in WACC.