Which of the Following Should Not Be Included in a Firm's

question 29

Multiple Choice

Which of the following should not be included in a firm's cost of capital estimation?

• A)the cost of permanent sources of short-term debt
• B)the cost of common stock
• C)the cost of retained earnings
• D)the cost of seasonal sources of short-term debt

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Definitions:

Increasing Opportunity Costs

The principle that as you increase production of one good, the opportunity cost of producing an additional unit of this good increases.

Constant Opportunity Costs

A condition in which the opportunity cost of producing one more unit of a good remains constant irrespective of the quantity.

Decreasing Opportunity Costs

A situation where the cost of forgoing the next best alternative decreases as more units of a product or service are produced.

Capital Goods

These are physical assets used in the production process to manufacture goods and services, including buildings, machinery, and equipment.