I am writing a paper and need to explain why I should use WACC to discount cash flows, its limitations and also show an example. Need help, please

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David · Accepted Answer

Que: Why I should use WACC to discount cash flows, its limitations and also show an 
example.  
Solution: 
WACC is the cost of the funds employed in the business. There are two forms in which the funds 
can be raised i.e. debt and equity. WACC is the minimum return which the firm must earn from a 
project to create shareholders wealth. If the return generated by the project is less than the firms 
WACC this means that the return is not sufficient to cover the cost of funds and it will destroy 
shareholders wealth.

I am writing a paper and need to explain why I should use WACC to discount cash flows, its limitations and also show an example. Need help, please

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