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?

<p>Money borrowed from outside the company (B)</p> Signup and view all the answers

What does the cost of debt capital include?

<p>Taxes (C)</p> Signup and view all the answers

What is MARR set relative to?

<p>The cost of capital (C)</p> Signup and view all the answers

What does debt capital refer to?

<p>Money borrowed from outside the company (A)</p> Signup and view all the answers

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

<p>Changing circumstances (A)</p> Signup and view all the answers

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

<p>Proportion of investment capital from debt and equity sources (D)</p> Signup and view all the answers

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

<p>They are connected in evaluating alternatives (D)</p> Signup and view all the answers

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