hard · CFA Level I corp
Northline Timber uses WACC to discount a project's cash flows.
If the project is funded by 100% debt at an interest rate of 6%, but the firm's WACC is 10%, which rate should be used?
- 10%, to reflect the firm's overall risk and target capital structure.
- 6%, because that is the specific cost of the capital used.
- 8%, as an average of the two rates.
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