Homework SourseWhich of the following statements about cost of capital esti
Which of the following statements about cost of capital estimation is most correct?
| A | In general, at least five methods will be used to estimate the cost of debt. |
Solution
WACC = Wd×Rd×(1-t)+We×Ke+Wp×Rp
W is weights of respective portfolios
R is return on respective portfolios
Wd+We+Wp = 1
All the long-term sources are used for calculation of WACC. Long-term funds are used for projects and hence, it is the most appropriate hurdle rate for discounting project cash flows.
Hence, correct option is (C) The corporate cost of capital is used as the hurdle (discount) rate for all projects being evaluated in the organization.
