Finance homework due wednesday july 17th
The cost of capital plays an important role in the overall financial decision making of the firm’s top managers. The cost of capital represents the opportunity cost associated with a company’s use of resources, and it can affect decisions about investments, debt levels, dividends, repurchases and more.
By understanding the true costs associated with using different sources of financing, companies can make sound investment decisions that ensure their long-term success and profitability. Additionally, knowing the “weighted average cost of capital” (WACC) helps managers understand which projects are likely to yield a return that exceeds this rate. This allows them to focus investments on those projects most likely to yield returns that exceed the WACC over time.