The Unlevered Cost of Capital Is

question 47

Multiple Choice

The unlevered cost of capital is:

• A)the cost of capital for a firm with no equity in its capital structure.
• B)the cost of capital for a firm with no debt in its capital structure.
• C)the interest tax shield times pretax net income.
• D)the cost of preferred stock for a firm with equal parts debt and common stock in its capital structure.
• E)equal to the profit margin for a firm with some debt in its capital structure.

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Definitions:

Mercantilism

The incorrect theory that a nation’s economic objective should be to accumulate precious metals in the public treasury; this theory prompted trade barriers to cut imports, but other countries retaliated, reducing trade and the gains from specialization.

Trade Gains

The benefits that countries obtain from engaging in international trade, often reflected in improvements in economic welfare, efficiency, and resource allocation.

Supply-side Shocks

Unexpected events that affect the supply side of the economy, potentially altering the cost of production and leading to changes in prices and output.

Consumer Spending

The total expenditure by households and individuals on goods and services within a country's economy.