When calculating a firm’s Weighted Average Cost of Capital, the cost of debt
True or False
1.) When calculating a firm’s Weighted Average Cost of Capital, the cost of debt
is based on the weighted average coupon rate of all debt issues outstanding.
2.) Your firm has a project that has an NPV of $500,000 when excluding the cost of research and development that has already been completed. However, the research and development cost the firm $700,000 implying that the project will lose shareholders value overall. Therefore, the firm should not proceed with the project at this stage.
3.) A firm’s Weighted Average Cost of Capital is the appropriate hurdle rate to be used for all of its projects given it captures the firm’s cost of acquiring the funds needed to invest in the project.
4.) If a firm’s WACC is increased, the effect on firm value (holding all else equal) would be an increase in shareholder wealth.