How Would a Company's Cost of Capital Calculated from Book

question 106

Multiple Choice

How would a company's cost of capital calculated from book values be affected if the company's bonds were selling for more than face value?

• A) The cost of capital would increase.
• B) The cost of capital would decrease.
• C) The cost of capital would not be affected.
• D) The effect depends on the bonds' coupon rate.

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Definitions:

Total Cost of Ownership

The comprehensive assessment of the direct and indirect costs associated with the purchase and operation of a product or system over its entire lifespan.

Centralization

A process where decision-making authority is concentrated at a single point in the organization, often at the top management level.

Buying Specialization

A procurement approach where purchasing responsibilities are divided amongst team members based on specific categories of goods or services.

Purchasing Consortium

A group of companies or organizations that join together to pool their purchasing power, aiming to negotiate better terms and prices from suppliers.