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  Marginal Cost ndInvestment Decisions  The firm’s financing costs and investment returns will be affected by the volume of financing and investment undertaken. The weighted marginal cost of capital and the investment opportunities schedule are mechanisms whereby financing and investment decisions can be made simultaneously.  The Weighted Marginal Cost of Capital (WMCC) Themarginalcostofcapital(MCC)isdefinedasthecostofthelastdollarofnewcapitalthefirmraises,andthemarginalcostrisesasmoreandmorecapitalisraisedduringagivenperiod.  Asthevolumeoffinancingincreases,thecostsofthevarioustypesoffinancingwillincrease,raisingthe  firm’s weightedaveragecostofcapital.Therefore,itisusefultocalculatetheweightedmarginalcostofcapital(WMCC),whichissimplythe  firm’s weightedaveragecostofcapital(WACC)associatedwithitsnextdollarof totalnewfinancing  Calculating WMCC: Finding Break Points The level of total new financing at which the cost of one of the financing components rises, thereby causing an upward shift in the weighted marginal cost of capital (WMCC). 01

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Sep 10, 2019
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