Which of the Following Is Most Correct

question 28

Multiple Choice

Which of the following is most correct?

• A)When comparing two firms within the same industry, most analysts calculate the weighted average cost of capital on a before-tax basis to facilitate comparisons.
• B)Firms should use historical costs rather than marginal costs of capital.
• C)An increase in the risk-free rate will increase the cost of equity.
• D)All of these statements are equally correct.

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Definitions:

Product Diversity

The variation of products and services offered in a market to meet different customer needs and preferences.

Firms Exit

This occurs when businesses cease operations and leave a market, typically due to factors like unprofitability, competitive pressures, or changing market conditions.

Competitive Price-searcher

This refers to a market situation where companies set their prices based on competition and market conditions, aiming to attract customers by offering better deals than their rivals.

Long-run Equilibrium

A state in which supply and demand balance over the long term, and all factors of production and economic variables have fully adjusted.