A Company Has a Capital Structure That Consists of 50

question 121

Multiple Choice

A company has a capital structure that consists of 50% debt and 50% equity. Which of the following is generally true?

• A) The weighted average cost of capital is less than the cost of equity financing.
• B) The cost of equity financing is greater than the cost of debt financing.
• C) The weighted average cost of capital is calculated on a before-tax basis.
• D) Both A and B.

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Definitions:

Market Value

The current price at which an asset or service can be bought or sold in an open market, influenced by supply and demand.

Earnings Per Share

A financial ratio that measures the amount of a company's profit allocated to each outstanding share of common stock, indicating the company's profitability on a per-share basis.

Net Income

The total earnings of a company after subtracting all expenses from revenues.

Common Stock

A form of corporate equity ownership, a type of security representing ownership in a corporation and a claim on part of the corporation's assets and earnings.