Assume Russo's Has a Debt-Equity Ratio of

question 17

Multiple Choice

Assume Russo's has a debt-equity ratio of .4 and uses the capital asset pricing model to determine its cost of equity. As a result, the company's cost of equity:

• A) is affected by the firm's rate of growth projections.
• B) implies that the firm pays out all of its earnings to its shareholders.
• C) is dependent upon a reliable estimate of the market risk premium.
• D) would be unaffected if the dividend discount model were applied instead.
• E) will be unaffected by changes in overall market risks.

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Definitions:

Accounts Payable Balance

The total amount of money a company owes to its suppliers or vendors for products and services purchased on credit.

Disbursement To Suppliers

The payment made by a company to its suppliers for goods or services received.

Operating Cycle

The average time period between the acquisition of inventory by a business and the receipt of cash from the sale of that inventory.

Acquisition Of Inventory

The process of obtaining goods and materials for a company's operations, which could be for immediate use or to keep as stock for future sale or production.