Which of the Following Descriptions of the Component Costs of Capital

question 68

Multiple Choice

Which of the following descriptions of the component costs of capital is INCORRECT?

• A)The cost of preferred shares,K_p,is estimated as the current dividend yield on any existing preferred shares or shares of similar firms.
• B)The cost of debt,K_d,is estimated as the after-tax cost of issuing new debt (such as bonds)today.
• C)The cost of debt is estimated using the CAPM as the risk-free rate or long-term government bond yield plus beta times a market risk premium.
• D)All of the above are correct.

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Definitions:

People

Human beings, individually or collectively, considered in a social or demographic context.

Products

are goods or services that are created through a process and offered in the market to satisfy the needs or desires of consumers.

Profit

The financial gain obtained when revenues exceed the costs associated with business operations or investments.

Heart

That which is vital; the center or core of a person or thing. Expressing one’s innermost thoughts and feelings is termed “speaking from the heart,” and it is the basis of credibility and trust.