Problem
Your boss, John Robinson, is looking at the future prospects of the XXX company as a possible investment. Peter Shawn , CFO of Company XXX, recently specified that the Company's Weighted Average Cost of Capital (WACC) has improved in recent months. Mr Shawn also specified that this change would influence XXX's ability to accept future capital investments. Mr Robinson has asked him to explain these statements by the CFO.
Explain the components of a Company's WACC.
Indicate how an increase in the cost of capital influences the viability of future capital investment alternatives.