Using Market Values Rather Than Book Values for Cost of Capital

question 55

Multiple Choice

Using market values rather than book values for cost of capital computations insures that the firm:

• A) does not ignore the value of retained earnings.
• B) gets the full value of the debt tax shield.
• C) uses expected rates of return.
• D) will not invest in negative NPV projects.

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Definitions:

Sporophyte

The diploid, spore-producing phase in the life cycle of a plant that alternates with the haploid gametophyte phase.

Nonvascular

Refers to plants that lack vascular tissue, making them incapable of transporting water and nutrients over long distances.

Alternation of Generations

A reproductive cycle found in certain plants and algae, involving a sequential occurrence of two distinct forms, one haploid and the other diploid, each giving rise to the other.

Zygote

Diploid cell formed by the union of two gametes; the product of fertilization.