Which of the Following Statements Is Correct

question 22

Multiple Choice

Which of the following statements is correct?

• A)The cost of capital used to evaluate a project should be the cost of the specific type of financing used to fund that project.
• B)The cost of debt used to calculate the weighted average cost of capital is based on an average of the cost of debt already issued by the firm and the cost of new debt.
• C)One problem with the CAPM approach to estimating the cost of equity capital is that if a firm's stockholders are, in fact, not well diversified, beta might be a poor measure of the firm's true investment risk.
• D)The bond-yield-plus-risk-premium approach is the most sophisticated and objective method of estimating a firm's cost of equity capital.
• E)The cost of equity capital is generally easier to measure than the cost of debt, which varies daily with interest rates, or the cost of preferred stock which is issued infrequently.

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Definitions:

Accounts Receivable Period

The mean amount of time required for a company to receive payments due from its clients.

Sales

The total amount of a company's revenues earned from selling its goods or services.

Collect

Refers to the act of gathering or accumulating items or amounts, often used in the context of collecting payments or data.

Net Cash Flow

Net cash flow is the difference between a company's cash inflows and outflows over a specific period, providing insight into the company's liquidity and financial health.