Which of the following statements concerning the weighted average cost of capita

Question

Which of the following statements concerning the weighted average cost of capital (WACC) is/are correct? O a. The WACC is computed on the after-tax basis and with book value information. b. Since the WACC is an opportunity cost, it depends primarily on the sources of the funds, but not on the uses of the funds. c. The WACC is an appropriate discount rate for projects that have similar risk levels as those of existing projects of the company. O d. Both a and b are correct. O e. None of the above statements is correct

Explanation / Answer

Only b is correct..Since the WACC is an opportunity cost it depends primarily on the sources of the funds but not on the uses of the funds

a is incorrect because WACC is computed using market value weights

c is incorrect because not for similar risk levels of existing projects but for similar risk levels to average projects

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