When Securities Are Fairly Priced,the Original Shareholders of a Firm

question 92

Multiple Choice

When securities are fairly priced,the original shareholders of a firm pay ________ of the costs associated with bankruptcy and financial distress.

• A) the present value
• B) the book value
• C) the current value
• D) the market value

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Definitions:

Cost of Capital

The necessary return rate on investments a firm must attain to keep its market price stable and appeal to investors.

Net Present Value

A method used in capital budgeting to assess the profitability of an investment or project by calculating the difference between the present value of cash inflows and the present value of cash outflows.

Discount Rate

The interest rate used to discount future cash flows to their present value, often used in the context of evaluating investment opportunities.

WACC

Weighted Average Cost of Capital, a calculation of a firm's cost of capital wherein each category of capital is proportionately weighted.