In General, Firms Should Use Their Weighted Average Cost of Capital

question 4

True/False

In general, firms should use their weighted average cost of capital (WACC) to evaluate capital budgeting projects because most projects are funded with general corporate funds, which come from a variety of sources.However, if the firm plans to use only debt or only equity to fund a particular project, it should use the after-tax cost of that specific type of capital to evaluate that project.

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Definitions:

Disposable Income

The capital households have left for spending and saving after paying income taxes.

Disposable Income

The financial capacity of households to spend and save, net of income taxes.

Savings

The part of earnings not used for purchasing goods or services, typically saved for investing or future needs.

Disposable Income

Indicates the sum of funds households can allocate towards expenditure and savings once income taxes have been deducted.