When Taxes Are Ignored, Which of the Following Can Be

question 5

Multiple Choice

When taxes are ignored, which of the following can be used to calculate the weighted-average cost of capital?

• A)ratio of expected operating income to book value of all securities.
• B)the expected return on equity times the debt-equity ratio.
• C)ratio of expected operating income to market value of all securities.
• D)the required return on equity plus the required return on debt.

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Definitions:

Consumer Surplus

The mismatch between the aggregate amount consumers intend and can afford to pay for a product or service and the aggregate amount they really pay.

Producer Surplus

The difference between the amount a producer is willing to accept for a good versus what they actually receive in the market.

Producer Surplus

The difference between what producers are willing to accept for a good or service versus what they actually receive, often measured by the area above the supply curve and below the market price.

Demand Curve

A graph showing the relationship between the price of a good and the quantity of that good that buyers are willing to purchase, assuming all other factors remain constant.