Typically, According to the Text, the MCC Schedule Is Either

question 74

Multiple Choice

Typically, according to the text, the MCC schedule is either horizontal or rising, which implies that the cost of capital to a firm increases as it raises larger and larger amounts of capital.The rising section of MCC schedule

• A) Is caused by economies of scale in financing.
• B) Would be eliminated (that is, the MCC schedule would be horizontal) if the firm retained all of its earnings.
• C) Results from a change in the debt ratio as the firm expands.
• D) Occurs because the firm must, if it is to expand, be willing to take on riskier and riskier projects, and this causes an increase in the cost of capital.
• E) Results from flotation costs associated with the sale of new ordinary and preference shares, along with higher debt costs, as the firm's rate of expansion increases.

---

Definitions:

Rate of Return

The upward or downward movement in an investment's worth over an agreed-upon duration, quantified as a percentage of the investment's original price.

Shares

Units of ownership interest in a corporation or financial asset that provide a proportionate claim on the company's profits and assets.

Stock Listing

The process of adding a company's shares on a public stock exchange, allowing them to be bought and sold by investors.

Closing Price

The final price at which a stock is traded on a given trading day.