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

question 49

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 preference shares.
• 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 utilise an arithmetic average cost of capital or a weighted average cost of capital.

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Definitions:

Machine-Hours

A measure of production time, indicating how many hours machines are used in the manufacturing process.

Direct Labor-Hours

The total time workers spend producing a product or service, directly associated with the specific work on the product.

Departmental Predetermined Overhead Rates

Overhead rates calculated for specific departments within a manufacturing facility, reflecting the unique costs associated with each department's operations.

Machine-Hours

A measure of the time machines are used in the production process, often used as a basis for allocating overhead costs in a manufacturing environment.