The Capital Structure Weights Used in Computing the Weighted Average

question 19

Multiple Choice

The capital structure weights used in computing the weighted average cost of capital:

• A)are based on the book values of total debt and total equity.
• B)are based on the market value of the firm's debt and equity securities.
• C)are computed using the book value of the long-term debt and the book value of equity.
• D)remain constant over time unless the firm issues new securities.
• E)are restricted to the firm's debt and common stock.

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Definitions:

Fixed Costs

Costs that do not vary with the level of output or production, such as rent, salaries, and insurance premiums.

Sales Volume

The total quantity of products or services sold by a company within a specific period, often used as a measure of business activity.

Break Even

The point at which total costs and total revenues are equal, resulting in no net loss or gain.

Breakeven Point

The point at which total costs and total revenue are equal, meaning a business is neither making a loss nor a profit.