Which of the Following Statements Is Most Correct

question 57

Multiple Choice

Which of the following statements is most correct?

• A) One purpose of calculating the WACC is to have a singular cost of capital measure that can be applied to evaluate all of the firm's projects,including those of greater than and lesser than average risks.
• B) A firm facing a steep demand curve (that is,high flotation costs)for new equity would likely also face,at some point,a steeply upward sloping WACC curve.
• C) A breakpoint is based on the dollar value used of a specific type of capital,and occurs at the point where the cost of that capital type increases.Thus,if a firm has $100,000 in earnings,and stockholders want $50,000 of those earnings paid as dividends,then retained earnings will have two breakpoints.
• D) Answers a and b are both correct.
• E) All of the above are false.

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Definitions:

Direct Labour Hours

The total hours worked by employees directly involved in the production process, not including hours worked by supervisory or maintenance personnel.

Machine Hours

A measure of production time, representing the hours a machine is operated in the manufacturing of a product.

Costing System

A method or procedure adopted by a business to estimate the cost of its products for inventory valuation, cost control, and decision making.

Overapplied Overhead

Occurs when the overhead allocated to products or services is more than the actual overhead costs incurred.