Efficient Markets

question 6

Multiple Choice

Efficient markets:

• A) maximize total surplus.
• B) can occur without a central planner.
• C) occur when a perfectly competitive, well-functioning market is in equilibrium.
• D) All of these are true.

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Definitions:

Cost Of Capital

The rate of return required by a capital provider—debt or equity—for investing in a company.

Crossover Rate

Crossover Rate is the point at which two or more investment alternatives have the same net present value, used in capital budgeting to compare the desirability of projects.

WACC

A firm’s capital expenses are determined through the Weighted Average Cost of Capital, which proportionally weighs each category of capital.

NPV

Net Present Value - a financial metric used to evaluate the profitability of an investment or project, taking into account the time value of money by discounting future cash flows.