Capital Structure Planning and Capital Budgeting Decisions Quiz
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Questions and Answers

How is the combined cost of capital calculated?

By weighting the cost of each component of capital based on their proportions in the overall capital structure.

What is specific cost of capital?

The cost of each component of capital such as preference shares, debentures, and equity.

What does the average cost of capital refer to?

The weighted average cost of capital.

Define Marginal Cost of Capital.

<p>The cost of raising an additional unit of capital.</p> Signup and view all the answers

How is the Marginal Cost of Capital calculated?

<p>By taking the weighted average cost of additional funds.</p> Signup and view all the answers

What is Historical Cost of Capital?

<p>The cost that has already been incurred for financing a project.</p> Signup and view all the answers

Explain Future Cost of Capital.

<p>It is the expected cost of obtaining funds for financing a project.</p> Signup and view all the answers

Why is Marginal Cost of Capital important for decision-making?

<p>It provides insight into the cost of raising additional funds.</p> Signup and view all the answers

Differentiate between Average Cost of Capital and Marginal Cost of Capital.

<p>Average cost is the weighted average cost of capital, while marginal cost is the cost of raising an additional unit of capital.</p> Signup and view all the answers

How does the specific cost of capital influence financial decisions?

<p>By providing insights into the individual costs associated with different sources of financing.</p> Signup and view all the answers

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