During capital budgeting, the weighted average cost of capital is the relevant discount rate…

During capital budgeting, the weighted average cost of capital is the relevant discount rate rather than the individual source of funds because

Select one:

a.

the use of the cost for individual sources of capital would make investment decisions inconsistent.

b.

a project with the highest return would always be accepted under the specific cost criteria.

c.

investments funded by low-cost debt would have an advantage over other investments.

d.

the use of the cost for specific sources of capital would make investment decisions inconsistent, and investments funded by low-cost debt would have an advantage over other investments.

Each project or firm investments should be compared to

Select one:

a.

the specific means of financing used to support its implementation.

b.

the exiting interest rate at that point in time.

c.

the cost of new common stock equity.

d.

the weighted average cost of capital.

The required rate of return on new common stock is greater than the required rate of return on retained earnings because new common stock has to

Select one:

a.

compensate for risk.

b.

compensate for more dividends.

c.

compensate for expansionary problems.

d.

cover distribution costs.

Why is the cost of preferred stock usually higher than the cost of debt?

Select one:

a.

Preferred stock dividends are tax deductions.

b.

Interest on debt is tax deductible.

c.

Preferred stock dividends must be paid before common stock dividends.

d.

The tax deduction for debt interest expense and seniority of debt during bankruptcy.