FIN 101

Capital" is sometimes defined as funds supplied to a firm by investors. T   2. The cost of capital used in capital budgeting should reflect the average cost of the various sources of long-term funds a firm uses to acquire assets. T   3. The component costs of capital are market-determined variables in the sense that they are based on investors' required returns. T   4. Suppose you are the president of a small, publicly-traded corporation. Since you believ...

Q1. For a typical corporation, which of the following capital structures will result in the lowest weighted average cost of capital? a. 40% debt, 20% preferred stock, 40% common equity b. 50% debt, 10% preferred stock, 40% common equity c. 60% debt, 10% preferred stock, 30% common equity d. 60% debt, 15% preferred stock, 25% common equity Q2. Why should firms that own and operate multiple businesses that have different risk characteristics use business-specific, or divisional costs of cap...