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WACC

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Please help in understanding how to explain this concept.

In what sense is the WACC an average cost? In what sense is it a marginal cost?

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Solution Summary

WACC is evaluated as an average cost or marginal cost.

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A firm's long-term success depends upon the firm's investments earning a sufficient rate of return. This sufficient or minimum rate of return necessary for a firm to succeed is called the cost of capital.

The cost of capital can also be viewed as the minimum rate of return required keeping investors satisfied. Thus it is used to know the rate of return expected by the investors. Thus cost of capital is used to evaluate the project. It is also know as discount rate. The cost of capital can also be viewed as the minimum rate of return required keeping investors satisfied. Thus it is used to know the rate of return expected by the investors. Thus cost of capital is used to ...

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