Marginal Cost of Capital

question 73

Multiple Choice

Marginal cost of capital:

• A) recognizes that cost of capital does not stay constant as more funds are raised.
• B) usually provides the same capital budgeting choices as the use of weighted average cost of capital.
• C) can be defined as the cost of capital when no retained earnings are available for expansion.
• D) assumes an increasing cost of equity.

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Definitions:

Total Cost Approach

The total cost approach is an assessment method that considers all possible costs related to a product or project, including direct, indirect, fixed, and variable costs.

Discount Rate

The discount rate is the interest rate used in discounted cash flow analysis to determine the present value of future cash flows.

Salvage Value

The predicted remaining value of an asset at the termination of its functional life.

Working Capital

The amount by which current assets exceed current liabilities, indicating the liquidity level available to a business for day-to-day operations.