Ted Is Trying to Decide What Cost of Capital He

question 5

Multiple Choice

Ted is trying to decide what cost of capital he should assign to a project.Which one of the following should be his primary consideration in this decision?

• A)mix of funds used to finance the project
• B)length of the project's life
• C)use,or lack thereof,of preferred stock to finance the project
• D)amount of debt used to finance the project
• E)risk level of the project

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Definitions:

Business Segments

Parts of a company that can be separately identified by products provided or by geographic markets, allowing for analysis of the different areas of a business.

Variable Costing

An accounting approach that includes only variable production costs - direct materials, direct labor, and variable manufacturing overhead - in product costs, excluding fixed overhead.

Net Operating Income

The profit a company earns from its normal business operations, excluding non-operating income and expenses.

Contribution Margin

The amount remaining from sales revenues after all variable expenses have been deducted.