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.

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Definitions:

Related Party Transactions

Related party transactions are transfers of resources or obligations between a reporting entity and a related party, potentially affecting the financial position or performance of the entity.

Subsidiary

A company that is controlled by another company, known as the parent company, through the ownership of more than half of its voting stock.

Trade Union

An organization formed by workers from related fields that aims to protect their rights and interests through collective bargaining.