Which of the Following Is the Preferred Method in Estimating

question 109

Multiple Choice

Which of the following is the preferred method in estimating a firm's cost of capital?

• A)Consider the cost of a specific source of financing that will be used for a firm's new projects;i.e. ,the marginal cost of capital.
• B)Calculate the weighted average cost of new capital to be utilized in financing a firm's projects.
• C)Calculate the firm's weighted average CAPM to be utilized in financing a firm's projects.
• D)All of the above are equally acceptable.

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Definitions:

Future Date

A specified day in the future, often used in the context of agreements or financial transactions that will occur at a later time.

Amortized Historical Cost

The accounting method of gradually writing off the initial cost of an asset over a period, adjusting for depreciation or amortization.

Market Value

The present listed price for purchasing or selling an asset or service in a market.

Fair Value Hedge

A specific hedging strategy used to mitigate the risk of changes in the fair value of an asset or liability or an unrecognized firm commitment.