Using Market Values Rather Than Book Values for Cost of Capital

question 66

Multiple Choice

Using market values rather than book values for cost of capital computations ensures that the firm:

• A) does not ignore the value of retained earnings.
• B) gets the full value of the debt tax shield.
• C) uses expected rates of return.
• D) will not invest in positive NPV projects.

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Definitions:

Ausgleich

The compromise of 1867 that established the dual monarchy of Austria-Hungary.

Dual Monarchy

The arrangement in which two separate kingdoms are ruled by the same monarch while maintaining distinct governments and institutions, as with Austria-Hungary from 1867 to 1918.

Austria-Hungary

A central European empire existing from 1867 to 1918, it was a dual monarchy consisting of Austria and Hungary, which dissolved after its defeat in World War I.