Question

Projected free cash flows should be discounted at the firm's weighted average cost of capital to find the firm’s total corporate value.
a. true
b. false

Answer 1

The statement, projected free cash flows should be discounted at the firm's Weighted Average Cost of Capital to find the firm’s total corporate value, is true.

The Weighted Average Cost of Capital (WACC) is a firms average after-tax cost of capital from all sources including preferred stock, common stock, bonds, and other forms of debt. Also, projected free cash flows should be discounted at the firm's WACC.

Discounted free cash flow for the firm should be equal to all of the cash inflows and outflows. Also, it has to adjusted in order to present value by an appropriate interest rate, that the firm can be expected to bring in during its lifetime.

Thus, the WACC is commonly referred to as the firm's cost of capital.

Hence, option A is correct.

To learn more about Weighted Average Cost of Capital (WACC) here:

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