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WACC Concept and Discussion

a. What is Weighted Average Cost of Capital (WACC)? Identify TWO (2) factors that affect
the WACC of a company.

1- Using debt can help reduce the agency problem that may arise between the
management of a company and its shareholders. Explain.

2- Explain the effects of the following on the company's weighted average cost of capital:
i) Floatation cost
ii) Reduction in corporate tax

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Solution Summary

This solution includes a general discussion on WACC (Weighted Average Cost of Capital) and some of the factors that affect the WACC of a company, such as cost of debt, cost of common equity, flotation, corporate tax, and agency conflict. Attached in Word.

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