Consider the Following Two Statements: (I) to Calculate the Cost

question 37

Multiple Choice

Consider the following two statements: (i) To calculate the cost of capital using the levered cash flow approach, we need a risk free rate.
(ii) The levered cash flow approach is only correct if the firm is borrowing to finance an investment.

• A)(i) is correct and (ii) is incorrect.
• B)(ii) is correct and (i) is incorrect.
• C)Both (i) and (ii) are correct.
• D)both (i) and (ii) are incorrect.
• E)leverage does not impact betas.

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Definitions:

Economic Policies

Measures taken by a government to influence its economy, including monetary, fiscal, and supply-side policies.

President Hoover

President Hoover refers to Herbert Hoover, the 31st President of the United States, who served from 1929 to 1933, and is often remembered for his administration's response to the early years of the Great Depression.

Tax Rate

The percentage at which an individual or business's income or transactions are taxed by the government, affecting net income and investment decisions.

Trade Barriers

Measures implemented by governments to regulate or limit international trade for various purposes, such as protecting domestic industries or stimulating local economies.