Which of the Following Is a Limitation to the Weighted

question 30

Multiple Choice

Which of the following is a limitation to the Weighted Average Cost of Capital approach?

• A) Later projects may be rejected as not meeting the hurdle rate because cheaper funding was used up on an earlier project.
• B) Capital structures and interest rates are highly dynamic, always creating inconsistency in determining an overall cost of capital.
• C) The approach assumes that there will be more than one form of capital in the structure thereby being inapplicable to companies funded solely by common shares.
• D) Different investment decisions have different levels of risk and this is not taken into account in the model.
• E) An insufficient number of companies use this method of evaluating their capital structure to trust in its reliability.

---

Definitions:

Diagnosis-Related Group (DRG)

A system to classify hospital cases into groups for the purposes of payment and evaluation.

Medicare

A federal government program in the United States that provides health insurance to people over 65 and to certain younger people with disabilities.

Reimbursed

Compensated or paid back for expenses or losses incurred, often used in the context of healthcare costs or business expenses.

Telemedicine

The use of telecommunications technology to provide health care from a distance.