Which of the Following Statements Regarding Calculating a Firm's Cost

question 107

Multiple Choice

Which of the following statements regarding calculating a firm's cost of capital is correct?

• A) The after-tax cost of debt is generally more expensive than the after-tax cost of preferred stock.
• B) Since retained earnings are readily available, the cost of retained earnings is generally lower than the cost of debt.
• C) If a company's beta increases, this will increase the cost of capital.
• D) 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.

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Definitions:

Heuristics

Mental shortcuts or rules of thumb that simplify decision making, often used in problem-solving and judgment situations.

Algorithms

Step-by-step procedures or formulas for solving problems or completing tasks, often used in mathematics and computer science.

Overconfidence Phenomenon

The tendency for an individual to overestimate their abilities, performance, level of control, or chance of success.

Cognition

The cognitive activity of gaining understanding and knowledge by means of thinking, experiencing, and sensory perception.