T6 – WACC EXAM QUESTIONS WITH 100%
CORRECT ANSWERS [ GUARANTEED A+]
Weighted Average Cost of Capital (WACC) - ✔✔The average rate a company is
expected to pay its investors (equity, debt, preferred) for using their capital,
weighted by each component's proportion in the capital structure. It is
commonly used as the discount rate in DCF analysis.
Discount Rate - ✔✔The expected rate of return for investors, representing both
the time value of money and the riskiness of the investment.
Cost of Capital - ✔✔The minimum return that a company must earn on its
investments to satisfy its investors (debt holders, equity holders, etc.).
©morren 2025/2026. Year published 2026.
, Cost of Equity (Re) - ✔✔The return required by equity investors, often
calculated using CAPM: Re = Risk-Free Rate + Beta × (Market Return - Risk-Free
Rate)
CAPM (Capital Asset Pricing Model) - ✔✔A model that estimates the expected
return of an asset based on its risk relative to the market. Used to calculate the
cost of equity.
Risk-Free Rate (Rf) - ✔✔The return on a riskless investment, such as a 10- or
20-year U.S. Treasury bond.
Market Risk Premium (Rm - Rf) - ✔✔The additional return expected from the
market above the risk-free rate, historically around 6%.
Beta (β) - ✔✔A measure of a stock's volatility relative to the market.
©morren 2025/2026. Year published 2026.
CORRECT ANSWERS [ GUARANTEED A+]
Weighted Average Cost of Capital (WACC) - ✔✔The average rate a company is
expected to pay its investors (equity, debt, preferred) for using their capital,
weighted by each component's proportion in the capital structure. It is
commonly used as the discount rate in DCF analysis.
Discount Rate - ✔✔The expected rate of return for investors, representing both
the time value of money and the riskiness of the investment.
Cost of Capital - ✔✔The minimum return that a company must earn on its
investments to satisfy its investors (debt holders, equity holders, etc.).
©morren 2025/2026. Year published 2026.
, Cost of Equity (Re) - ✔✔The return required by equity investors, often
calculated using CAPM: Re = Risk-Free Rate + Beta × (Market Return - Risk-Free
Rate)
CAPM (Capital Asset Pricing Model) - ✔✔A model that estimates the expected
return of an asset based on its risk relative to the market. Used to calculate the
cost of equity.
Risk-Free Rate (Rf) - ✔✔The return on a riskless investment, such as a 10- or
20-year U.S. Treasury bond.
Market Risk Premium (Rm - Rf) - ✔✔The additional return expected from the
market above the risk-free rate, historically around 6%.
Beta (β) - ✔✔A measure of a stock's volatility relative to the market.
©morren 2025/2026. Year published 2026.
