Question

The firm’s WACC is: Set by the Board of Directors because it is the benchmark they...

  1. The firm’s WACC is:
    1. Set by the Board of Directors because it is the benchmark they use to evaluate upper management.
    2. Regulated by the IRS because tax-deductible debt is included in the computation
    3. Determined by the financial markets because investors provide the funds used by firms and these funds have costs, which are the return demanded by investors.
    4. The same as the firm’s IRR
    5. The total NPV of all the capital budgeting projects in which the firm invests in any year.
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Answer #1

Weighted average cost of capital of the company is related to to minimum return which the company has to earn and it is determined by the financial market because investor will be providing the funds used by the firm and these funds have the cost, so there will be the return demanded by investors.

All the other options are false.

Correct answer will be option (C) Determined by the financial market because investor provide the fund used by the firm and this fund will have cost which are return demanded by investors.

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