Which One of the Following Primarily Determines the Cost of Capital

question 92

Multiple Choice

Which one of the following primarily determines the cost of capital for a project?

• A) Current debt-equity ratio of the firm.
• B) Firm's WACC.
• C) Manner in which the funds will be utilized.
• D) Source of the funds for the project.
• E) expected internal rate of return on the project

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Definitions:

Investing

Distributing financial resources with the aim of earning revenue or gains.

Covenants

Agreements or clauses, especially in contracts and property leases, that stipulate actions the parties must perform or avoid.

Monitoring

The process of systematically observing, checking, and recording activities or data to ensure standards are met or progress is being made.

Moral Hazard

The situation where one party is more likely to take risks because they do not bear the full consequences of their actions.