Assume That You Are Willing to Postpone Consumption Today and Buy

question 52

Multiple Choice

Assume that you are willing to postpone consumption today and buy a certificate of deposit (CD) at your local bank.Your reward for postponing consumption implies that at the end of the year ________.

• A)you will be able to consume fewer goods
• B)you will be able to buy the same amount of goods or services
• C)you will be able to buy fewer goods or services
• D)you will be able to buy more goods or services

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Definitions:

Debt/Equity Ratio

The ratio that outlines the distribution of financing between debt and equity for company assets.

Cost of Equity

The rate of return that shareholders require on their investment in a company, influencing how much a company should pay to finance its equity.

Pre-Tax Cost of Debt

The rate of return that a company pays on its debt before taking into account taxes.

Weighted Average Cost of Capital (WACC)

The average rate of return a company is expected to pay its security holders to finance its assets, weighted by the proportion of equity and debt in the company's capital structure.