The Following Data Are for a Series of Increasingly Extensive

question 21

Multiple Choice

The following data are for a series of increasingly extensive flood-control projects. For Plan D marginal costs and marginal benefits are

• A) $72,000 and $64,000, respectively.
• B) $28,000 and $12,000, respectively.
• C) $24,000 and $18,000, respectively.
• D) $16,000 and $28,000, respectively.

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Definitions:

Cost of Debt

The actual rate a firm incurs on its overall debt, representing the cost of acquiring funds.

Equity Risk

The risk of loss associated with fluctuations in the price of equities or stocks.

M&M Proposition I

A principle in corporate finance that asserts the market value of a firm is unaffected by the capital structure, assuming no taxes and perfect markets.

M&M Proposition II

A theory proposing that the cost of equity increases with the level of debt in a company, making the firm's weighted average cost of capital remain unchanged.