Question
Which of the following is false regarding a firm's cost of capital? A: It is used to calculate the NPV on a firm's projects. B:
Which of the following is false regarding a firm's cost of capital?
A: It is used to calculate the NPV on a firm's projects.
B: It considers the proportion of each component in a firm's capital structure.
C: It should be lower than the investor's required rate of return.
D: It is measured using current market values.
Why should stock market investors ignore diversifiable risks when calculating the required rates of return?
A: Diversifiable risk cannot be accurately quantified.
B: Beta includes a component to compensate for the diversifiable risk.
C: Diversifiable risk can be eliminated.
D: The market risk premium compensates investors for diversifiable risk.
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