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.

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Definitions:

Holder In Due Course

A legal term for a person who has acquired a negotiable instrument in good faith and for value, and thus has certain protections against defenses and claims that could be asserted against the original payee.

Requirements

Conditions or capabilities needed to achieve a specific task or to adhere to standards or regulations.

Party

An individual or group involved in a legal proceeding or social event.

Instrument For Value

A legal document that represents or embodies a certain value and can be exchanged or used in financial transactions, such as checks, bonds, or certificates of deposit.