Which of the Following Statements Is CORRECT

question 88

Multiple Choice

Which of the following statements is 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,i.e. ,it is the after-tax cost of debt if debt is to be used to finance the project or the cost of equity if the project will be financed with equity.
• B) The after-tax cost of debt that should be used as the component cost when calculating the WACC is the average after-tax cost of all the firm's outstanding debt.
• C) Suppose some of a publicly-traded firm's stockholders are not diversified;they hold only the one firm's stock.In this case,the CAPM approach will result in an estimated cost of equity that is too low in the sense that if it is used in capital budgeting,projects will be accepted that will reduce the firm's intrinsic value.
• D) The cost of equity is generally harder to measure than the cost of debt because there is no stated,contractual cost number on which to base the cost of equity.
• E) The bond-yield-plus-risk-premium approach is the most sophisticated and objective method for estimating a firm's cost of equity capital.

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Definitions:

Artemisia Gentileschi

An Italian Baroque painter known for her powerful depictions of biblical and mythological female figures, and for being one of the first recognized female artists.

Self-Portrait

An artistic representation of the artist by themselves, often a painting, drawing, photograph, or other forms of media.

Borromini

Francesco Borromini was an influential Italian architect in the Baroque period, known for his innovative and curved architectural designs, such as San Carlo alle Quattro Fontane.

Dome

An architectural element characterized by a hollow upper half of a sphere, commonly used in religious and public buildings to symbolize the heavens or provide a grandiose interior space.