A Firm May Face Increases in the Weighted Average Cost

question 117

True/False

A firm may face increases in the weighted average cost of capital either when retained earnings have been exhausted or due to increases in debt, preferred stock, and common equity costs as additional new funds are required.

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Definitions:

Psychological Tension

A state of mental or emotional strain, often resulting from challenging or demanding circumstances.

Attributions

Explanations that individuals create for the causes of their own and others' behaviors and events.

Fundamental Attribution Error

The tendency to overemphasize personality-based explanations for behaviors observed in others while underestimating the influence of situational factors.

Self-serving Bias

A common tendency to attribute one's successes to personal characteristics and failures to external factors.