What Is Meant by Measuring the Weighted Average Cost of Capital

question 3

Multiple Choice

What is meant by measuring the weighted average cost of capital on a marginal basis?

• A)to measure only the cost of historic capital
• B)to measure the cost on a weighted average basis of both new and historic capital
• C)to measure only the cost of new capital
• D)to measure only the cost of internal capital

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Definitions:

Financial Instruments

Contracts that give rise to a financial asset of one entity and a financial liability or equity instrument of another entity.

FASB

The Financial Accounting Standards Board, an organization responsible for setting and improving financial accounting and reporting standards in the U.S.

IASB

The International Accounting Standards Board, responsible for developing and enforcing the International Financial Reporting Standards (IFRS).

Fair Value Measurement

An accounting approach that provides an estimate of the price at which an asset could be exchanged or a liability settled, based on current market conditions.