When Firms Use Multiple Sources of Capital, They Need to Calculate

question 27

Multiple Choice

When firms use multiple sources of capital, they need to calculate the appropriate discount rate for valuing their firm's cash flows as

• A) a simple average of the capital components costs.
• B) a sum of the capital components costs.
• C) a weighted average of the capital components costs.
• D) they apply to each asset as they are purchased with their respective forms of debt or equity.

---

Definitions:

Short 300 Shares

A trading strategy where an investor borrows 300 shares from a broker and sells them on the open market, planning to buy them back later at a lower price.

Initial Margin

The minimum amount of equity required to open a new position in a margin account, set by the broker.

Common Stock

A type of security that represents ownership in a corporation, giving shareholders voting rights and potential dividends.

Bid-Ask Spread

The difference between the highest price that a buyer is willing to pay (bid) for an asset and the lowest price that a seller is willing to accept (ask).