On Cost of Capital (Calculating) * Statement I: The cost of new ordinary share is higher than the cost of common (ordinary) stock because of flotation costs involved in its sale. Statement II: There are three techniques for measuring the cost of common stock. They are the Gordon's growth model approach, the CAPM approach, and the bond plus approach. Statement III: The comparison of the MCC and the investment opportunity schedule (IOS helps determine the firm's optimal capital budget to be used in the capital budgeting process.
On Cost of Capital (Calculating) * Statement I: The cost of new ordinary share is higher than the cost of common (ordinary) stock because of flotation costs involved in its sale. Statement II: There are three techniques for measuring the cost of common stock. They are the Gordon's growth model approach, the CAPM approach, and the bond plus approach. Statement III: The comparison of the MCC and the investment opportunity schedule (IOS helps determine the firm's optimal capital budget to be used in the capital budgeting process.
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
Related questions
Question
CHOICES
A. Only Statement I is correct
B. Only Statement II is false
C. Statements II and III are false
D. Only Statement III is false
E. All statements are correct
Transcribed Image Text:On Cost of Capital (Calculating)
*
Statement I: The cost of new ordinary share is higher than the cost of common (ordinary)
stock because of flotation costs involved in its sale.
Statement II: There are three techniques for measuring the cost of common stock. They
are the Gordon's growth model approach, the CAPM approach, and the bond plus approach.
Statement III: The comparison of the MCC and the investment opportunity schedule (IOS
helps determine the firm's optimal capital budget to be used in the capital budgeting
process.
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