Question

When discounting cash flows of a company project, the discount rate can be determined using either the Weighted Average Cost of Capital (WACC) or the cost of a single type of financing.

a) True
b) False

Answer 1

The discount rate for a company project can be determined using either the Weighted Average Cost of Capital (WACC) or the cost of a single type of financing.

Step-by-step explanation:

When discounting cash flows of a company project, the discount rate can be determined using either the Weighted Average Cost of Capital (WACC) or the cost of a single type of financing.

Using the WACC takes into consideration the different sources of financing a company uses and weights them based on their proportion in the company's capital structure. This provides a comprehensive discount rate that reflects the overall cost of capital.

On the other hand, using the cost of a single type of financing, such as the cost of debt or the cost of equity, focuses on a specific component of the company's capital structure. This approach is simpler but may not capture the true cost of capital.