When We Adjust the WACC to Reflect Flotation Costs, This

question 83

Multiple Choice

When we adjust the WACC to reflect flotation costs, this approach

• A) raises each capital source's effective cost.
• B) raises only the cost of external equity.
• C) reduces the cost of debt.
• D) reduces each capital source's effective cost.

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Definitions:

Expected Rate Of Return

The anticipated amount of profit or loss an investment generates, based on historical or estimated performances.

Standard Deviation

A measure of the amount of variability or dispersion of a set of values; used in finance to represent the volatility of an investment.

Probability

The measure of the likelihood that an event will occur, expressed as a number between 0 and 1, where 0 indicates impossibility and 1 indicates certainty.