Which of the Following Statements Is Correct

question 8

Multiple Choice

Which of the following statements is correct?

• A) The cost of capital used to evaluate a project should be the cost of the specific type of financing used to fund that project.
• B) The cost of debt used to calculate the weighted average cost of capital is based on an average of the cost of debt already issued by the firm and the cost of new debt.
• C) One problem with the CAPM approach to estimating the cost of equity capital is that if a firm's stockholders are,in fact,not well diversified,beta might be a poor measure of the firm's true investment risk.
• D) The bond-yield-plus-risk-premium approach is the most sophisticated and objective method of estimating a firm's cost of equity capital.
• E) The cost of equity capital is generally easier to measure than the cost of debt,which varies daily with interest rates,or the cost of preferred stock that is issued infrequently.

---

Definitions:

Market Price

The current rate at which a product or service is available for purchase or sale in an open market.

Congestion Fee

A congestion fee is a charge imposed on users of a crowded public goods, such as city roads or public transit systems, intended to reduce traffic congestion and improve air quality.

Internalize Costs

The process of ensuring that businesses or individuals take into account the external costs they impose on society in their decision-making.

Equilibrium Price

The price at which the quantity of a good or service demanded by consumers equals the quantity supplied by producers, resulting in a balance of the market.