On Cost of Capital (Calculating) * Statement I: The firm's cost of capital is calculated as a weighted average of the costs of the various types of financing. Statement II: The cost of capital, often called the required rate of return, is used in: (1) making capital budgeting decisions; (2) helping to establish the optimal capital structure; and (3) making such decisions as leasing, bond financing, and working capital management. Statement III: The cost of preferred stock is found by dividing the annual ordinary stock dividend by the net proceeds from sale.
On Cost of Capital (Calculating) * Statement I: The firm's cost of capital is calculated as a weighted average of the costs of the various types of financing. Statement II: The cost of capital, often called the required rate of return, is used in: (1) making capital budgeting decisions; (2) helping to establish the optimal capital structure; and (3) making such decisions as leasing, bond financing, and working capital management. Statement III: The cost of preferred stock is found by dividing the annual ordinary stock dividend by the net proceeds from sale.
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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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 firm's cost of capital is calculated as a weighted average of the costs of
the various types of financing.
Statement II: The cost of capital, often called the required rate of return, is used in: (1)
making capital budgeting decisions; (2) helping to establish the optimal capital structure;
and (3) making such decisions as leasing, bond financing, and working capital management.
Statement III: The cost of preferred stock is found by dividing the annual ordinary stock
dividend by the net proceeds from sale.
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