Use the following statements to answer this question:
I.The WACC is the most appropriate rate to discount future cash flows of average risk.
II.The investment opportunities schedule uses WACC as a threshold for investment.
A)I and II are correct.
B)I and II are incorrect.
C)I is correct and II is incorrect.
D)I is incorrect and II is correct.

Question

Quizplus · Accepted Answer

Both statements I and II are correct. The weighted average cost of capital (WACC) reflects the average risk of the company and is the most appropriate rate to discount future cash flows of average risk. The investment opportunities schedule, on the other hand, shows the available investment opportunities for the company at various rates of return, with the WACC being used as a threshold for investment.

Use the Following Statements to Answer This Question