Which of the following statements is CORRECT?
A. The cost of capital used to evaluate a project should be the cost of the specific type of financing used to fund that project, i.e., it is the after-tax cost of debt if debt is to be used to finance the project or the cost of equity if the project will be financed with equity.
B. The after-tax cost of debt that should be used as the component cost when calculating the WACC is the average after-tax cost of all the firm's outstanding debt.
C. Suppose some of a publicly-traded firm's stockholders are not diversified; they hold only the one firm's stock. In this case, the CAPM approach will result in an estimated cost of equity that is too low in the sense that if it is used in capital budgeting, projects will be accepted that will reduce the firm's intrinsic value.
D. The cost of equity is generally harder to measure than the cost of debt because there is no stated, contractual cost number on which to base the cost of equity.
E. The bond-yield-plus-risk-premium approach is the most sophisticated and objective method for estimating a firm's cost of equity capital.
Answer: D
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Which of the following should you look for in evaluating a study that is secondary data?
A) What was the sample? B) How large was the sample? C) What was the response rate? D) Was the information validated? E) all of the above
Other income and other expense are categories under which secondary activities of the firm not directly related to the operations are classified
Indicate whether the statement is true or false
Western Classics Publishing Company produces updated versions of literary classics targeted for children. Its book binding machines are capable of producing 50 books per hour. The unit-related cost of producing books is $2.50, and Western Classics sells its books for $9.50 each. Reading Ready Publishing has asked the company to produce 10,000 copies of a book for $7.50. Western Classics estimates that unit-level costs for the new book will be $3.00, and due to the size of the book, its binding machines will only be able to produce 20 books per hour. Western Classics has a total of 5,000 machine hours of capacity. In addition, to complete the special order, Western Classics will have to purchase an additional special-purpose machine that will cost $8,000. Required:Assume that existing
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A responsibility accounting system should include the revenues and costs under a division manager's control
Indicate whether the statement is true or false