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Please could you explain the difference between Wacc and the Marginal cost of capital and why it is necessary?
We should always appraise a project at the cost of the money being raised for the project – the cost of the money raised is the marginal cost of capital (and stands to be different depending how the money is raised).
However, you cannot be asked to calculate a marginal cost of capital – any discounting in F9 is at the WACC. This is valid on the basis that we assume no change in the gearing and no change in the level of business risk.
All this is covered in detail in the chapter in our free course notes (and my free lecture that goes with it):
“When (and when not!) to use the WACC for investment appraisal”
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