A. When retained earnings are exhausted, the MCC breaks upward. What happens if the firm continues to raise capital after that? Does the MCC remain flat or move further upward? In either case, why? B. Which is incorrect in regard to a firm?s cost of capital? i. It is the risk adjusted discount rate that is appropriate for all projects under consideration by the firm. ii. It is the average rate for using the firms funds. iii. It is the opportunity cost of using the firms funds. iv. It is the minimum rate of return a project must generate to warrant consideration by management.
A. When retained earnings are exhausted, the MCC breaks upward. What happens if the firm continues to raise capital after that? Does the MCC remain flat or move further upward? In either case, why? B. Which is incorrect in regard to a firm?s cost of capital? i. It is the risk adjusted discount rate that is appropriate for all projects under consideration by the firm. ii. It is the average rate for using the firms funds. iii. It is the opportunity cost of using the firms funds. iv. It is the minimum rate of return a project must generate to warrant consideration by management.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:A. When retained earnings are exhausted, the
MCC breaks upward. What happens if the firm
continues to raise capital after that? Does the
MCC remain flat or move further upward? In
either case, why?
B. Which is incorrect in regard to a firm?s cost
of capital?
i. It is the risk adjusted discount rate that is
appropriate for all projects under
consideration by the firm.
ii. It is the average rate for using the firms
funds.
iii. It is the opportunity cost of using the firms
funds.
iv. It is the minimum rate of return a project
must generate to warrant consideration by
management.
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