The correct answer is: A. long-term projects.
The weighted average cost of capital (WACC) is a measure of a company’s overall cost of capital, taking into account the different types of financing it uses. The WACC is calculated by weighting the cost of each type of financing, such as debt and equity, by its relative proportion in the company’s capital structure.
The cost of capital for long-term projects is typically higher than the cost of capital for short-term projects. This is because long-term projects are riskier than short-term projects. Long-term projects require a company to commit to a large amount of capital for a long period of time. If the project is not successful, the company could lose a significant amount of money.
The cost of capital for long-term projects is also affected by the risk of the project itself. Projects that are more risky will have a higher cost of capital. This is because investors require a higher return on their investment for riskier projects.
The cost of capital for long-term projects is calculated using a variety of methods. One common method is the capital asset pricing model (CAPM). The CAPM takes into account the risk-free rate of return, the market risk premium, and the beta of the project.
The beta of a project is a measure of its risk relative to the market. A project with a beta of 1 has the same risk as the market. A project with a beta of 2 is twice as risky as the market.
The cost of capital for long-term projects is an important factor in making investment decisions. A company should only invest in projects that have a return that is greater than the cost of capital.