Question

Your professor, in discussing the weighted average cost of capital (WACC), said that something was “like trying to nail a block of jell-o to a tree.” The point he was making was:

Group of answer choices

Stock is tough to value—so tough, in fact, that it’s impossible, just as it is not possible to nail a block of jell-o to a tree.

Water and gelatin powder, when mixed together and allowed to set, will form a new sunbstance, jell-o. In the same way, the costs of debt, preferred stock, and common equity come together to form a new rate, the WACC.

The WACC is tough to measure, but it’s possible by combining estimates of the costs of debt, preferred stock, and common equity. Each of these costs is like a nail that, collectively, allow us to estimate the elusive WACC.

The cost of common equity is tough to estimate and no single approach is completely satisfactory. If we can obtain various estimates of the cost of equity using multiple approaches, we can hopefully obtain some consensus in which we have confidence.

Hah! There was no such illustration. There was, however, an amusing story about herding cats.

Answer 1

"like trying to nail a block of jell-o to a tree"will mean that the act of attempting something impossible and since weighted average cost of capital is based upon various assumptions and it is never easy to calculate the cost of capital as it will have various types of capital which will be allocated in different ratio.

he attempted to say that the weighted average cost of capital is tough to measure but it can be measured through an optimal mix of different type of financing.

correct answer is option (C)The WACC is tough to measure, but it’s possible by combining estimates of the costs of debt, preferred stock, and common equity

Other options are stating otherwise.