Which of the Following Statements Is Most Correct

question 34

Multiple Choice

Which of the following statements is most correct?

• A) Since stockholders do not generally pay corporate taxes, corporations should focus on before-tax cash flows when calculating the weighted average cost of capital (WACC).
• B) When calculating the weighted average cost of capital, firms should include the cost of accounts payable.
• C) When calculating the weighted average cost of capital, firms should rely on historical costs rather than marginal costs of capital.
• D) Answers a and b are correct.
• E) None of the answers above is correct.

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Definitions:

Purchasing Power

The worth of a currency represented by how much goods or services can be purchased with one unit of that currency.

Recognition Lag

The time delay between when an economic problem or shock occurs and when it is recognized or identified by policymakers.

Political Lag

The delay between a need for policy action being identified and the government implementing the response, often due to bureaucratic or political reasons.

Decision Lag

The time taken between identifying an economic issue and the implementation of policy to address it.