In order to recognize the interrelationship between financing and investments, the firm should use__________when evaluating an investment.
A) the current opportunity cost
B) the weighted average cost of all financing sources
C) the most costly source of financing
D) the least costly source of financing

Question

Quizplus · Accepted Answer

When evaluating an investment, the firm should use the weighted average cost of all financing sources because it takes into account the cost and proportion of each type of financing used by the firm. This helps to determine the overall cost of capital and the potential return on investment needed to generate a positive net present value. Considering only the current opportunity cost or the most/least costly source of financing may not provide an accurate representation of the financing and investment interrelationship.

In Order to Recognize the Interrelationship Between Financing and Investments