A firm's capital structure and its target capital structure proportions are important determinants of a firm's
weighted average cost of capital. Explain.
What will be an ideal response?
The reason we calculate a cost of capital is that it enables us to evaluate one or more of the firm's investment
opportunities. Remember that the cost of capital should reflect the riskiness of the project being evaluated, so a firm
should calculate multiple costs of capital when it makes investments in multiple divisions or business units having
different risk characteristics. Thus, for the calculated cost of capital to be meaningful, it must correspond directly to the
riskiness of the particular project being analyzed. That is, in theory the cost of capital should reflect the particular way
in which the funds are raised (the capital structure used) and the systemic risk characteristics of the project.
Consequently, the correct way to calculate capital structure weights is to use the actual dollar amounts of the various
sources of capital actually used by the firm. In practice, the mixture of financing sources used by a firm will vary from
year to year. For this reason, many firms find it expedient to use target capital structure proportions when calculating
the firm's weighted average cost of capital.
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Organizations that wish to do business globally through their websites must be sensitive to local audiences.
Answer the following statement true (T) or false (F)
A company purchased a delivery van on October 1 of the current year at a cost of $40,000. The van is expected to last six years and has a salvage value of $2,200. The company's annual accounting period ends on December 31.1. What is the depreciation expense for the current year, assuming the straight-line method is used?2. What is the book value of the van at the end of the first year?
What will be an ideal response?
A balance sheet that lists the assets above the liabilities and stockholders' equity sections is a(n) ________ balance sheet
A) report form B) unclassified form C) account form D) audited form
Derek lives in Phoenix where he hears almost daily reports about the high levels of ozone along with suggestions on when individuals should purchase gasoline. As he views the hazy condition in the sky, he decides the government is basically ignoring environmental problems. Which statement best describes the government's involvement?
A. The government relies mostly on businesses to control various types of pollution and expects them to cover the costs. B. Although the government has established several environmental agencies, actual spending on reducing pollution is only about $100 million per year. C. The government is delegating most of the responsibility for a cleaner environment to individuals and nonprofit organizations. D. The government is encouraging technology that will eliminate pollution but not supporting this research financially. E. The government is spending several billions of dollars a year to reduce various types of pollution.