Using Market Values Rather Than Book Values for Cost of Capital

question 87

Multiple Choice

Using market values rather than book values for cost of capital computations ensures that the firm:

• A)does not ignore the value of retained earnings.
• B)gets the full value of the debt tax shield.
• C)uses expected rates of return.
• D)will not invest in negative NPV projects.

---

Definitions:

Lattice Structure

The regular, repeated three-dimensional arrangement of atoms, ions, or molecules in a metal or other crystalline solid.

Oxidized

A chemical change in which a substance loses electrons, often associated with the addition of oxygen or the loss of hydrogen.

Chemical Reaction

A process that leads to the transformation of one set of chemical substances to another through the making and breaking of bonds between atoms.

Rust

A type of fungal disease that affects plants, causing reddish-brown spots, or the oxidation of iron and its alloys resulting in reddish-brown flaking coatings.