Author Question: Explain what is meant by the weighted cost of capital and how it is used in capital budgeting. ... (Read 89 times)

darbym82 · **on:** Jul 1, 2018

Explain what is meant by the weighted cost of capital and how it is used in capital budgeting.

What will be an ideal response?

Question 2

New smartphone applications are developed to help consumers find the cheapest prices in the neighborhood. Therefore,

A) the local competitive will become more intensive.
B) the prices of goods listed in the application will be lowered.
C) price discrimination will occur against consumers without a smartphone or this application.
D) All of the above.

macmac · **Reply #1 on:** Jul 1, 2018

Answer to Question 1

The proportion of each type of financing (debt, equity and retained earnings) in the firm's capital structure, and applying these percentages to the opportunity costs of capital associated with financing a prospective capital outlay. This weighted average of the opportunity cost of capital then is used to discount projected cash flows back to a net present value.

Answer to Question 2

D