Podcast
Play an AI-generated podcast conversation about this lesson
Questions and Answers
What does the cost of capital represent for a firm?
What does the cost of capital represent for a firm?
- The cost of financing (correct)
- The cost of production
- The cost of labor
- The cost of goods sold
Why are financial managers ethically bound to only invest in projects that exceed the cost of capital?
Why are financial managers ethically bound to only invest in projects that exceed the cost of capital?
- To increase firm value (correct)
- To maximize the cost of capital
- To prevent losses for the firm
- To minimize the firm value
Why is it important for firms to maintain an optimal mix of debt and equity financing?
Why is it important for firms to maintain an optimal mix of debt and equity financing?
- To have fixed financing costs
- To increase financing costs
- To avoid any financing costs
- To minimize the overall cost of capital (correct)
Why does the firm undertake the investment opportunity when it can earn 7% on funds costing only 6%?
Why does the firm undertake the investment opportunity when it can earn 7% on funds costing only 6%?
Signup and view all the answers
Why does the firm reject the investment opportunity with a 12% expected return and 14% financing cost?
Why does the firm reject the investment opportunity with a 12% expected return and 14% financing cost?
Signup and view all the answers
Flashcards are hidden until you start studying
