If the nominal weighted average cost of capital (WACC )is 24 percent and inflation is 16 percent,then the real WACC is closest to:
A)7 percent.
B)8 percent.
C)13 percent.
D)15 percent.

Question

Quizplus · Accepted Answer

The real WACC can be calculated using the Fisher equation: (1 + nominal rate) = (1 + real rate) * (1 + inflation rate). Solving for the real rate: (1 + 0.24) = (1 + real rate) * (1 + 0.16), which gives a real rate of approximately 7 percent.

If the Nominal Weighted Average Cost of Capital (WACC )Is