1. Capital, in the context of invested funds, refers to funds acquired for use over long periods of time for the purpose of:

a. acquiring long-lived assets such as machinery, land, buildings, etc.

b. getting business started

c. financing working capital required for a new venture

d.all of the above

2. The two classifications or components of capital are:

a. long-term debt and common stock

b. debt and preferred stock

c.long-term debt and equity, which includes common and preferred stock

d. long-term and short-term debt

3. Although preferred stock is legally a form of equity, it is often referred to as a hybrid security:

a. because it has characteristics of both long-term debt and equity

b. so in the context of the cost of capital, it is viewed as a third component

c. either of the above

d.both of the above

4. The information needed to determine the firms weighted average cost of capital (WACC) is:

a. the cost of each component and the target capital structure of the firm

b.the mix of each component of capital and its respective cost

c. either of above

d. none of the above

5. The use of the WACC is necessary in evaluating newly proposed projects through the NPV and IRR techniques. In this light, it is appropriate to evaluate the proposed projects:

a. by using the costs of the existing capital as the best estimate of the costs of capital required to support the new project

b. against the likely cost of the newly acquired capital that will support the project

c. by using a WACC that reflect current market conditions

d.b and c