A Company Determines Its Overall Cost of Capital by

question 113

Multiple Choice

A company determines its overall cost of capital by

• A) multiplying the percentage of debt by its cost and adding the result to the percentage of equity multiplied by its cost
• B) calculating the average cost of interest rates paid on loans and other debt instruments
• C) calculating the percent of earnings paid out in dividends
• D) multiplying the percentage of debt in the capital structure by the percentage of equity

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Definitions:

Declaration of Dividends

The formal announcement by a company's board of directors to distribute profits to shareholders, specifying the dividend amount and payment date.

Liquidating Dividend

A type of dividend paid by a company from its capital base, essentially returning part of the investors' original investment.

Paid-in Capital

Funds raised by a company through the issuance of shares to investors, representing the capital provided by shareholders through direct investments or share purchases.

Par Value

The face value of a bond or stock as stated on the certificate or document, distinct from its market value.