Answer the following statements true (T) or false (F)
1) The cost of capital is the rate of return a firm must meet or exceed on investments to increase the firm's value.
2) The cost of capital is used to decide whether a proposed corporate investment will increase or decrease a firm's stock price.
3) The cost of capital reflects the cost of financing and is the minimum rate of return that a project must earn to increase firm value.
4) The cost of capital acts as a major link between a firm's long-term investment decisions and the wealth of the firm's owners as determined by the market value of their shares.
5) The cost of capital of each source of financing is the after-tax cost of obtaining the financing using the historically based cost reflected by the existing financing on the firm's books.
1) TRUE
2) TRUE
3) TRUE
4) TRUE
5) FALSE
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