ACA Financial Management Practice Exam 2025 – Complete Prep Guide

In the context of evaluating the Weighted Average Cost of Capital (WACC) for a specific project or investment, the relevance of various factors can significantly impact the decision-making process. The correct choice highlights that a project's industry specificity is irrelevant to determining the appropriateness of the WACC for that project.

The WACC is intended to reflect the average rate of return expected by all investors (debt and equity holders) in the firm based on the firm's capital structure and risk profile. When assessing whether the WACC is suitable for a particular project, what matters more is how the project's risk and capital structure measure up against general market conditions and the firm’s existing financial strategy. Industry-specific factors may not alter the underlying cost of capital used by the firm unless they directly impact risk or the cost components of the WACC formula.

In contrast, other factors such as consistent historical debt and equity levels or systematic business risk being constant are highly relevant. Changes in debt or equity levels can affect the firm's overall risk and, consequently, its WACC. Similarly, systematic business risk influences the expected returns from equity and debt financing relative to market performance, meaning stability in this area supports the application of the current WACC.

Understanding that finance not being specific to the project is also