Typically,according to the Text,the MCC Schedule Is Either Horizontal or Rising,which

question 61

Multiple Choice

Typically,according to the text,the MCC schedule is either horizontal or rising,which implies that the cost of capital to a firm increases as it raises larger and larger amounts of capital.The rising section of MCC schedule

• A) Is caused by economies of scale in financing.
• B) Would be eliminated (that is,the MCC schedule would be horizontal)if the firm retained all of its earnings.
• C) Results from a change in the debt-to-assets ratio as the firm expands.
• D) Occurs because the firm must,if it is to expand,be willing to take on riskier and riskier projects,and this causes an increase in the cost of capital.
• E) Results from flotation costs associated with the sale of new common and preferred stock,along with higher debt costs,as the firm's rate of expansion increases.

---

Definitions:

Maturity Value

The sum owed to an investor at the conclusion of a fixed-duration investment, encompassing both the original amount invested and the accrued interest.

Promissory Note

A financial instrument constituting a written promise by one party to pay another party a definite sum of money either on demand or at a specified future date.

Simple Interest

Interest calculated solely on the principal amount of a loan or deposit, without compounding.

Consecutive GICs

A sequence of Guaranteed Investment Certificates held one after another, often to create a ladder strategy for managing interest rate risk.