Firms Should Use Their Weighted Average Cost of Capital (WACC)

question 44

True/False

Firms should use their weighted average cost of capital (WACC) when they are funding their capital projects with a variety of sources. However, when the firm plans on using only debt or only equity to fund a particular project, it should use the after-tax cost of the specific source of capital to evaluate that project.

---

Definitions:

Utility Function

A mathematical representation that ranks an individual's preferences for different bundles of goods or outcomes, based on the level of satisfaction or utility they provide.

Consumption

The act of utilizing goods and services to satisfy needs or desires.

Total Cost

The sum of fixed and variable costs incurred by a firm in the production of goods or services.

Price of Cheese

The cost at which cheese is sold, which can vary based on factors like type, quality, demand, and geographical location.