The Cost of Capital Is the Same as the Cost

question 47

Multiple Choice

The cost of capital is the same as the cost of equity for firms that are financed

• A)entirely by debt.
• B)by both debt and equity.
• C)entirely by equity.
• D)by 50 percent equity and 50 percent debt.

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Definitions:

Cash Flow Components

The distinct parts that make up a company's cash flow, including operations, investments, and financing activities.

Compound Interest

The addition of interest to the principal sum of a loan or deposit, where interest also earns interest from then on.

Simple Interest

Simple interest is interest calculated only on the principal amount, or on that portion of the principal amount which remains unpaid.

Present Value

The present value of a sum of money or series of cash flows expected in the future, discounted at a certain rate of return.