Why do we consider the WACC to be both a marginal cost of capital as well as an average cost of capital?

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asked Aug 24, 2020 153k views

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Joanmacat · Answer 1 · 2020-08-28T12:43:02+0000

Answer:

The WACC is an average cost because it is a weighted average of the component costs of capital. However, each component cost is a marginal cost; that is, the cost of new capital. Thus, the WACC is the weighted average marginal cost of capital.

Step-by-step explanation:

Why do we consider the WACC to be both a marginal cost of capital as well as an average cost of capital?

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