The Cost of Capital of Each Source of Financing Is

question 44

True/False

The cost of capital of each source of financing is the after-tax cost of obtaining the financing using the historically based cost reflected by the existing financing on the firm's books.

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Definitions:

Net Income

The remaining earnings of a company once expenses and taxes are subtracted from the gross revenue.

Times Interest Earned Ratio

A financial ratio that measures a company’s ability to meet its interest obligations based on its earnings before interest and taxes (EBIT).

Default

Failure to fulfill a financial obligation, such as missing a loan repayment.

Debt

An amount of money borrowed by one party from another, often for making large purchases that they could not afford under normal circumstances, which needs to be paid back.