Use of the Marginal Cost of Capital

question 53

Multiple Choice

Use of the marginal cost of capital:

• A) acknowledges that when retained earnings is used up as a source of equity the cost of capital decreases as new common stock is sold to support more growth.
• B) recognizes that the return from the last dollar of funds generated should be less than the cost of the last dollar of funds raised.
• C) is highly dependent on the investment opportunities available to the firm.
• D) is the cost of borrowing privately.

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Definitions:

Ambivalence

Mixed feelings or contradictory attitudes towards an object, person, or action, making decision-making difficult.

Change

The process of becoming different, often implying an evolution or transformation in characteristics, conditions, or behaviors.

Problem

A situation, question, or issue that presents difficulty, uncertainty, or challenge, which requires a solution or response.