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Chapter 10

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Questions and Answers

What is the relationship between the cost of debt and equity capital and the MARR?

The MARR is always higher than the cost of capital

The MARR is independent of the cost of capital

The MARR is not influenced by the cost of debt and equity capital

The MARR is set relative to the cost of capital (correct)

What does MARR stand for?

Marginally Adjusted Rate of Return

Maximum Allowable Rate of Return

Mean Average Rate of Return

Minimum Acceptable Rate of Return (correct)

What is the weighted average cost of capital (WACC) based on?

Proportion of investment capital from preferred stock sources

Proportion of investment capital from equity sources only

Proportion of investment capital from debt and equity sources (correct)

Proportion of investment capital from debt sources only

What is debt capital?

Money borrowed from outside the company Signup and view all the answers

What does the cost of debt capital include?

Taxes Signup and view all the answers

What is MARR set relative to?

The cost of capital Signup and view all the answers

What does debt capital refer to?

Money borrowed from outside the company Signup and view all the answers

What is the main factor causing MARR values to change over time?

Changing circumstances Signup and view all the answers

What does the weighted average cost of capital (WACC) consider?

Proportion of investment capital from debt and equity sources Signup and view all the answers

What is the relationship between the cost of equity capital and the MARR?

They are connected in evaluating alternatives Signup and view all the answers