Consider the Following Probability Distribution for Stocks C and D

question 44

Multiple Choice

Consider the following probability distribution for stocks C and D: The expected rates of return of stocks C and D are _____ and _____, respectively.

• A)4.4%; 9.5%
• B)9.5%; 4.4%
• C)6.3%; 8.7%
• D)8.7%; 6.2%

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Definitions:

WACC

The Weighted Average Cost of Capital is a metric that calculates a company's cost of capital, with each capital category being weighted proportionally.

Capital Budgeting

The process by which investors or managers decide which capital investment projects - like new machinery or expansion plans - to undertake, based on potential profitability and risk analysis.

Opportunity Cost

A cash flow that a firm must forego to accept a project. For example, if the project requires the use of a building that could otherwise be sold, the market value of the building is an opportunity cost of the project.

Overall WACC

A comprehensive measure of a company's cost of capital, incorporating the weighted costs of its equity and debt financing.