The Overall Weighted Average Cost of Capital Is Used Instead

question 95

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 consistent.
• B) it is the minimum point for the firms cost of capital given the current equity mix.
• C) investments funded by low cost debt would have a disadvantage over other investments.
• D) a project with the lowest return would always be accepted under the specific cost criteria.

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Definitions:

Free-Rider Problem

A situation in which individuals receive benefits from a public good without contributing to its cost, leading to underprovision of those goods.

Selective Benefits

Selective benefits are advantages or perks provided exclusively to members of a group, organization, or society, rather than to the general public.

Collective Goods

Benefits or goods that are shared and cannot be denied to anyone within a community or society, such as clean air or public safety.

Membership Association

An organization founded and funded by members who share a common interest or goal, offering various benefits to members such as resources, networking opportunities, and advocacy.