Which of the following is FALSE? A. When using the cost of capital, it is important that it reflects the after-tax cost of raising funds over the long run. B. The cost of capital can be thought of as the rate of return required by the market suppliers of capital in order to attract their funds to the firm. C. The cost of capital is a weighted average of the cost of funds which reflects the interrelationship of financing decisions. D. *When computing the weighted average cost of capital, the preferred weighing scheme is book value weights. E. The cost of capital provides a benchmark against which the potential rate of return on an investment is compared.

The proposition that borrowers are willing to pay a higher rate for long term financing best reflects which theory of term structure of interest rates? A. Expectations theory. B. Habitat theory. C. Liquidity preference theory. D. Market segmentation theory. E. Efficient markets theory