The Overall Weighted Average Cost of Capital Is Used Instead

question 104

Multiple Choice

The overall weighted average cost of capital is used instead of costs for specific sources of funds because

• A) use of the cost for specific sources of capital would make investment decisions inconsistent.
• B) a project with the highest return would always be accepted under the specific cost criteria.
• C) investments funded by low cost debt would have an advantage over other investments.
• D) two of the other answers are correct.

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Definitions:

Price of Capital

The cost of using capital for production, typically represented by the interest rate or rate of return required by investors.

Total Expenditure

The aggregate amount of money spent by consumers or the government on goods and services over a specified period.

Price of Labor

The compensation received by employees in exchange for their work, often discussed in terms of wages or salaries.

Isoquants

Curves that represent combinations of different inputs that produce the same output level, used in production theory.