With Respect to Issues Related to the Cost of Capital

question 93

Multiple Choice

With respect to issues related to the cost of capital:

• A)An increase in the debt ratio will result in greater risk for debt holders but not equity holders
• B)The cost of capital is the return a firm must earn before tax to satisfy security holders
• C)The WACC is the correct discount rate for average-risk projects
• D)The expected return on equity is relevant to capital budgeting decisions

---

Definitions:

Government Grants

Funds provided by the government to individuals or organizations for specific purposes without a requirement for repayment.

Average Cost

Average Cost refers to the total cost of production divided by the number of units produced, effectively calculating the cost per unit.

Entire Market

The total sales volume of all competitors within a particular industry or sector.

Demand Conditions

Refers to the nature and scale of demand in the industry which affects the competitiveness and strategy of firms.