Which of the Following Statements Is Correct

question 91

Multiple Choice

Which of the following statements is correct?

• A)If the risk-free rate increases, it will have no impact on the weighted average cost of capital.
• B)Investor returns are reduced when float costs increase, and therefore float costs reduce the weighted average cost of capital.
• C)The weighted average cost of capital is a historical cost.
• D)None of these statements are correct.

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Definitions:

Variable Cost

Variable cost refers to expenses that fluctuate with the level of output or production activity, such as raw materials and direct labor costs.

Fixed Costs

Fixed costs are expenses that do not change with the level of production or sales activity, such as rent, salaries, or insurance, remaining constant regardless of business operations.

Contribution Margin

The difference between sales revenue and variable costs, showing how much sales contribute to covering fixed costs and generating profit.

Variable Costs

Expenses that fluctuate with changes in production volume or service levels, such as materials and labor costs.