The general rule for using the weighted average cost of capital (WACC) in capital budgeting decisions is to accept all projects with
A) rates of return greater than or equal to the WACC.
B) rates of return less than the WACC.
C) rates of return equal to or less than the WACC.
D) positive rates of return.

Question

Quizplus · Accepted Answer

The general rule for using WACC in capital budgeting decisions is to accept all projects with rates of return greater than or equal to the WACC. This is because the WACC represents the minimum rate of return that a company needs to earn on its investments to satisfy its investors. Therefore, accepting projects with rates of return below the WACC would not create value for the company and its investors. Projects with rates of return higher than the WACC, on the other hand, have the potential to create value and should be considered for investment.

The General Rule for Using the Weighted Average Cost of Capital