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Why is the Weighted Average Cost of Capital (WACC) important for a company's decision-making?
Step by step
Solved in 2 steps
- What does the empirical evidence say about capital structure theory? What are the implications for managers?Why is the WACC (weighted average cost of capital) important? When is it useful to a company?What is Weighted Average Cost of Capital or WACC? How can current economic and political environments impact a company's WACC?
- Explain the relationship between the weighted average cost of capital (WACC), the maximization of firm value, and financial decision making.When placed in the context of looking at a company's capital structure, are there different forumulas you can use to find Weighted Average Cost of Capital and does the company being levered or unlevered make a difference?What factors contribute to the business risk of a company? What is financial risk? How do the various sources of risk affect the optimal capital structure?
- Explain some of the factors that can affect the cost of capital and describe whether or not it is something that a company can control.What are some factors that influence: (1) a firm’sreceivables level and (2) the dollar cost of carryingreceivables?Describe the process of calculating the Company Cost of Capital?
- Why is it important for a firm to know how to determine their cost of capital?Describe two factors to be considered when calculating the weighted average cost of capital (WACC) for a company.Discuss the Weighted Average Cost of Capital (WACC). Why do firms calculate their weighted average cost of capital?
