When Can the Cost of Capital for a Company as a Whole

question 34

Multiple Choice

When can the cost of capital for a company as a whole be a valid measure of the cost of capital for a particular project?

• A)When market data are available.
• B)When it is not practicable to estimate the cost of capital for individual projects.
• C)When the risk of a new project is the same as the risk of the company's existing assets.
• D)When CAPM is used as an EX POST model.

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Definitions:

Equilibrium Price

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

Supply Curve

An illustration that demonstrates the correlation between a good or service's price and the amount made available in a specific period.

Demand Curve

A graph representing the relationship between the quantity of a good consumers are willing and able to purchase and the price of the good.

Supply

The total amount of a specific good or service that is available to consumers at a given price level in a given time period.