Capital Budgeting Proposals Should Be Evaluated as If the Project

question 47

Multiple Choice

Capital budgeting proposals should be evaluated as if the project were financed:

• A) entirely by debt.
• B) entirely by equity.
• C) half by debt and half by equity.
• D) with the highest cost source of funds, to be safe.

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Definitions:

Economies of Scale

Refer to the cost advantages that enterprises obtain due to their scale of operation, with cost per unit of output generally decreasing with increasing scale.

Domestic Price

The price of goods or services within a country's borders, influenced by local supply and demand conditions.

World Price

the international market price of a good or service, influenced by worldwide demand and supply conditions.

Absolute Advantage

The ability of an entity to produce a good or offer a service more efficiently than its competitors, using fewer resources.