A Firm Is Considering Using Its Own Funds to Finance

question 76

Multiple Choice

A firm is considering using its own funds to finance an investment, but needs an estimate of the discount rate. Currently the firm is earning 4 percent on funds held in a bank account and 6 percent on funds held in stocks. If the firm has 20 percent of its funds in the bank account and the remaining 80 percent in stocks, what is the firm's weighted average cost of capital?

• A)5.6 percent
• B)5.8 percent
• C)4.4 percent
• D)4.2 percent

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Definitions:

Pathological Loss

An experience of loss that is abnormal or exceeds normal expectations, often requiring psychological intervention.

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Refers to the activities and processes that occur within the brain, including cognition, emotion, perception, and regulation of bodily functions.

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Relating to older adults, typically those who are past the middle age and into their retirement years.

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A progressive neurological disorder that causes memory loss, cognitive decline, and personality changes due to brain cell death.