Which of the Following Statements Is Correct

question 76

Multiple Choice

Which of the following statements is correct?

• A) The cost of capital used to evaluate a project should be the cost of the specific type of financing used to fund that project.
• B) The cost of debt used to calculate the weighted average cost of capital is based on an average of the cost of debt already issued by the firm and the cost of new debt.
• C) One problem with the CAPM approach to estimating the cost of equity capital is that if a firm's shareholders are, in fact, not well diversified, beta might be a poor measure of the firm's true investment risk.
• D) The bond-yield-plus-risk-premium approach is the most sophisticated and objective method of estimating a firm's cost of equity capital.
• E) The cost of equity capital is generally easier to measure than the cost of debt, which varies daily with interest rates, or the cost of preference shares which is issued infrequently.

---

Definitions:

Group Boycotts

A concerted action by businesses to exclude a party from commercial dealings, potentially violating antitrust laws.

Rule Of Reason

A doctrine used in antitrust law to determine if a business practice is acceptable, considering its purpose, effects, and whether it restrains trade.

Clayton Act

A U.S. antitrust law, passed in 1914, aimed at promoting competition and preventing monopolies by addressing specific practices not covered by the Sherman Act.

Treble Damages

A form of punitive damages awarded in a legal case that are three times the amount of actual compensatory damages.