What Is the Company Cost of Capital for a Firm

question 101

Multiple Choice

What is the company cost of capital for a firm financed with 30% debt if the debt requires a 10% return and equity requires a 16% return?

• A) 11.8%
• B) 13.3%
• C) 14.2%
• D) 14.8%

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Definitions:

Volume Maximization

A pricing objective that involves setting prices low to encourage a greater volume of purchases; also called penetration pricing.

Penetration Pricing

A pricing strategy aimed at entering a new market by setting a low price initially to attract customers and gain market share.

Escalator Clause

A section in a contract that provides for price increases if certain, specified conditions occur.

Loss-leader Pricing

A pricing strategy where a product is sold at a loss to attract customers, with the expectation they will make additional purchases of other items at regular prices.