The weighted average cost that reflects the interrelationship of financing decisions can be obtained by weighing the cost of each source of financing by the target proportion in a firm's capital structure.

Question

Quizplus · Accepted Answer

This statement correctly defines the concept of weighted average cost of capital (WACC). The WACC is calculated by taking into account the cost of each type of financing (such as debt and equity) used by a company, and weighting it according to its relative proportion in the company's capital structure. This approach reflects the fact that the cost of capital is not only affected by the cost of each type of financing, but also by the mix of financing used by the firm.

The Weighted Average Cost That Reflects the Interrelationship of Financing