Running head: WACC AND INVESTMENT DECISIONSWACC and investment decisionsNameInstitutionDate1WACC AND INVESTMENT DECISIONS2IntroductionIn Corporate investment decision making, weighted average cost of capital is a criticalcomponent that guides sound investment decisions. The WACC can be described as the averagerequired rate of return of suppliers of funds for a company, and it is at a rate for which theprospective cash flows of a company are discounted to their present values for the purposes ofvaluation. The usefulness and importance of the WACC as a financial tool for companies as wellas investors are well acknowledged by financial decision makers and analysts. It is therefore ofgreat importance for firms to arrive at investment decisions as well as assess projects with sameand different risks (Bodie, 2013).Computations of critical metrics such as economic value added as well as net presentvalue requires the WACC. It is also useful for investors to make company valuations. Theanalysis for WACC can be viewed at from two standpoints-the company and the investors. Froma firms point of view, WACC can be described as the combined cost of capital that a form has topay back to its sources of funds, that is, equity holders and debt holders. Additionally, it can beviewed as the minimum return rate a firm should gain in order to generate investors value.However, from an investor point of view, the WACC is seen as an opportunity cost of theinvestors ...
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