The correct answer is C.
Capital budgeting decisions are analyzed with help of weighted average cost of capital (WACC). WACC is a weighted average of the costs of debt and equity financing, where the weights are the proportions of debt and equity in the firm’s capital structure.
The cost of debt is the interest rate that a firm pays on its outstanding debt. The cost of equity is the return that investors expect to earn on their investment in the firm’s common stock.
The WACC is used to calculate the present value of the future cash flows from a capital investment project. The present value of the future cash flows is then compared to the initial investment cost of the project to determine whether the project is profitable.
Option A is incorrect because component cost is the cost of a particular component of a capital investment project, such as the cost of a piece of equipment. Option B is incorrect because common stock value is the market value of a firm’s common stock. Option D is incorrect because asset valuation is the process of determining the value of an asset.