Which of the Following Statements Is Most Correct

question 61

Multiple Choice

Which of the following statements is most correct?

• A) The cost of capital used to evaluate a project should be the cost of the specific type of financing used to fund that project.
• B) The cost of debt used to calculate the weighted average cost of capital is based on an average of the cost of debt already issued by the firm and the cost of new debt.
• C) One problem with the CAPM approach to estimating the cost of equity capital is that if a firm's stockholders are, in fact, not well diversified, beta may be a poor measure of the firm's true investment risk.
• D) The bond-yield-plus-risk-premium approach is the most sophisticated and objective method of estimating a firm's cost of equity capital.
• E) The cost of equity capital is generally easier to measure than the cost of debt, which varies daily with interest rates, or the cost of preferred stock since preferred stock is issued infrequently.

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Definitions:

Hiring Freeze

A temporary halt on hiring new employees, typically implemented by an organization to reduce costs.

Contracting Work

The practice of hiring external contractors to perform specific tasks or projects rather than employing full-time staff to do the same work.

Contract Workers

Individuals employed on a temporary basis to complete specific tasks or for a set period, often without the benefits provided to permanent staff.

Employment Legislation

Laws and regulations that govern the relationship between employers and employees, covering aspects such as wages, working hours, health and safety, and discrimination.