For a Company That Is Not Planning to Change Its

question 18

Multiple Choice

For a company that is not planning to change its target capital structure, the proportions of debt and equity used in calculating the weighted cost of capital should be based on the current weights of the individual components.

• A)book value
• B)market value
• C)replacement value
• D)accounting value

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Definitions:

Retention Ratio

The retention ratio is a financial metric that measures the proportion of a company's earnings that are not distributed as dividends to shareholders but are instead reinvested in the business.

Debt-equity Ratio

A measure of a company's financial leverage calculated by dividing its total liabilities by its shareholder's equity.

Growth Rate

Growth rate refers to the percentage increase in the size or value of something over a specific period.

Retains Earnings

Profits that a company chooses to re-invest in the business rather than distribute to shareholders.