A Firm May Face Increases in the Weighted Average Cost

question 117

True/False

A firm may face increases in the weighted average cost of capital either when retained earnings have been exhausted or due to increases in debt, preferred stock, and common equity costs as additional new funds are required.

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Definitions:

Direct Financing Lease

A type of lease where the lessor effectively finances the leased asset, and the lease payments are structured to cover the original cost plus a profit margin.

Sales-Type Lease

A lease agreement where the lessor earns interest income over the lease term, treating the transaction like a sale.

Dealer Profit

The margin or financial gain a dealer achieves from the buying and selling of products or securities.

Unearned Interest Income

It is the interest earned on investments or loans that has been recorded but not yet received in cash.