The Subjective Approach

question 55

Multiple Choice

The subjective approach:

• A) Can be defined as a stair step method of applying WACC.
• B) Is the method of using information from another firm when calculating WACC.
• C) Employs pure play strategy.
• D) Is defined as the application of one cost of capital rate to all projects under consideration.
• E) Is defined as the inclusion of flotation costs in the WACC.

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Definitions:

Average Total Cost

The total cost of production divided by the total quantity produced, representing the cost per unit of output.

Average Variable Cost

The per-unit variable cost of production, calculated by dividing total variable costs by the quantity of output produced.

Marginal Cost

The increase in total production cost when output is increased by one unit.

Variable Cost

Costs that vary directly with the level of production or output, such as materials and labor.