The correct answer is: D. weighted average cost of capital (WACC).
The WACC is a measure of a company’s overall cost of capital, taking into account the different types of financing it uses and the different costs associated with each type. It is calculated by weighting the cost of each type of financing by its proportion of the company’s total capital.
The WACC is used as a discount rate in capital budgeting, which is the process of evaluating and selecting investment projects. The WACC is also used to calculate the value of a company, as it represents the rate of return that investors expect from the company.
The WACC is a critical tool for financial managers, as it helps them to make sound investment decisions and to value their company.
Here is a brief explanation of each option:
- A. Average cost of capital is the average of the costs of the different types of financing a company uses. However, it does not take into account the proportions of each type of financing.
- B. Mean cost of capital is the same as the average cost of capital.
- C. Weighted cost of capital is the cost of each type of financing, weighted by its proportion of the company’s total capital. This is the correct answer.
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