Which of the Following Statements Is True

question 52

Multiple Choice

Which of the following statements is true?

• A)The level of general economic conditions will determine whether a firm should utilize an arithmetic average cost of capital or a weighted average cost of capital.
• B)A firm should utilize a weighted average cost of capital for evaluating investment decisions rather than an arithmetic average cost of capital.
• C)For an average firm that is capitalized with 65% equity,usage of an arithmetic average cost of capital will usually overstate the true cost of capital.
• D)All of the above are true.
• E)None of the above is true.

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Definitions:

Cable Television

A system of delivering television programming through coaxial cables or fiber-optic cables to consumers, offering a wide range of channels and services.

Natural Monopoly

A market situation where due to the high costs of entry or unique resources, one provider effectively serves the entire market, making competition unfeasible.

Consumer Surplus

The contrast between the overall amount consumers are prepared and financially capable to invest in a good or service and the actual amount paid.

Marginal Cost

The incremental expense associated with the production of an extra unit of a good or service.