If a Company Fails to Accurately Predict It's Cost of Equity,then

question 13

Multiple Choice

If a company fails to accurately predict it's cost of equity,then:

• A) the firm's wacc will also be inaccurate.
• B) the firm may not be using the proper interest rate to estimate NPV.
• C) the firm may incorrectly accept or reject projects based on decisions made using the cost of capital computed with an incorrect cost of equity.
• D) All of the above are true.

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Definitions:

Z-Scores

Standardized scores that indicate how many standard deviations an element is from the mean.

Standard Normal Distribution

A probability distribution that has a mean of zero and a standard deviation of one.

Normal Distributions

An evenly balanced probability distribution centered around the mean, where data points close to the mean occur with greater frequency than those at a distance.

Normal Distributions

A bell-shaped probability distribution characterized by symmetry around the mean, describing many types of real-world data.