If a Company Fails to Accurately Predict It's Cost of Equity

question 66

Multiple Choice

If a company fails to accurately predict it's cost of equity, then:

• A) the firm's WACC will also be inaccurate.
• B) the firm may not be using the proper interest rate to estimate NPV.
• C) the firm may incorrectly accept or reject projects based on decisions made using the cost of capital computed with an incorrect cost of equity.
• D) All of the above are true.

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Definitions:

Average Tax Rate

The ratio of the total amount of taxes paid to the total taxable income, showing the percentage of income that goes to taxes.

Tax Rate

The percentage of a price or taxable amount that is payable as tax.

Percentage Calculation

The mathematical process of finding a part or portion of a number in terms of 100.

Percentage Calculation

The process of finding a part of a whole number or quantity, typically expressed as a fraction of 100.