Do we utilize the historical costs of existing debt and equity to compute the cost of capital, or do we use the current costs as decided by the market to compute the cost of capital? Why?

Q: Briefly explain why we refer to the opportunity cost of capital, instead of just “cost of capital”…

A: A cost of capital is referred to as the opportunity cost of capital as it is an opportunity for us…

Q: What is the cost of capital rate in the question?

A: Cost of capital is the WACC of the project. WACC is equal to weighted average cost of capital. WACC…

Q: What is capital rationing, what conditions lead toit, and how should it be dealt with?

A: Capital budgeting is a process in which capital projects are assessed in terms of their viability…

Q: Which of the following is typically not treated as one of the components of capital in cost of…

A: The balance sheet is one of the important financial statements of the business. It represents the…

Q: What is the difference between capital budgeting decisions and capital structure decisions? Which of…

A: Capital budgeting: Capital budgeting is the process of evaluating different investment projects that…

Q: The user cost of capital does NOT depend on a. The real interest rate b. The unit price of capital…

A: The question is related to Cost of capital. The cost of capital is the minimum required rate of…

Q: What is the payback method of analyzing capital investments?

A: Formula: Payback period = Initial Investment / annual cash inflows