Question

Describe one classification scheme that firms often use to obtain risk adjusted costs of capital.

Answer 1

WACC is one classification scheme that firms often use to obtain risk adjusted costs of capital.
It the weighted average cost of equity, debt, preferred stock. It the overall cost of project
WACC = Weight of Equity * Cost of Equity + Weight of Debt*After tax cost of Debt + Weight of preferred Stock* Cost of Preferred Stock  
WACC is used cost of capital required calculate NPV and help in accepting or rejecting a project.

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