Which of the following statements is correct?
A)If the risk-free rate increases, it will have no impact on the weighted average cost of capital.
B)Investor returns are reduced when float costs increase, and therefore float costs reduce the weighted average cost of capital.
C)The weighted average cost of capital is a historical cost.
D)None of these statements are correct.

Question

Quizplus · Accepted Answer

A is incorrect because an increase in the risk-free rate can increase the cost of equity and therefore increase the weighted average cost of capital (WACC).
B is incorrect because float costs (the cost of financing inventory or accounts receivables) are not related to the WACC. 
C is incorrect because the WACC is a forward-looking cost, based on the current market conditions and the anticipated cost of raising capital in the future.

Which of the Following Statements Is Correct