Which of the following statements is true?
A) The level of general economic conditions will determine whether a firm should utilize an arithmetic average cost of capital or a weighted average cost of capital.
B) A firm should utilize a weighted average cost of capital for evaluating investment decisions rather than an arithmetic average cost of capital.
C) For an average firm that is capitalized with 65% equity, usage of an arithmetic average cost of capital will usually overstate the true cost of capital.
D) All of the above are true.
E) None of the above is true.
Answer: B
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