Which statement is correct, all else held constant? A. If you have both the dividend growth and the security market line's costs of equity, you should use the higher of the two estimates when computing WACC. B. The aftertax cost of debt increases when the market price of a bond increases. C. A decrease in a firm's WACC will increase the attractiveness of the firm's investment options. D. Beta is used to compute the return on equity and the standard deviation is used to compute the return on preferred.
Which statement is correct, all else held constant? A. If you have both the dividend growth and the security market line's costs of equity, you should use the higher of the two estimates when computing WACC. B. The aftertax cost of debt increases when the market price of a bond increases. C. A decrease in a firm's WACC will increase the attractiveness of the firm's investment options. D. Beta is used to compute the return on equity and the standard deviation is used to compute the return on preferred.
Intermediate Financial Management (MindTap Course List)
13th Edition
ISBN:9781337395083
Author:Eugene F. Brigham, Phillip R. Daves
Publisher:Eugene F. Brigham, Phillip R. Daves
Chapter2: Risk And Return: Part I
Section: Chapter Questions
Problem 12MC
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Risk and return
Before understanding the concept of Risk and Return in Financial Management, understanding the two-concept Risk and return individually is necessary.
Capital Asset Pricing Model
Capital asset pricing model, also known as CAPM, shows the relationship between the expected return of the investment and the market at risk. This concept is basically used particularly in the case of stocks or shares. It is also used across finance for pricing assets that have higher risk identity and for evaluating the expected returns for the assets given the risk of those assets and also the cost of capital.
Question
Which statement is correct, all else held constant?
A. If you have both the dividend growth and the security market line's costs of equity , you should use the higher of the two estimates when computing WACC.
B. The aftertax cost of debt increases when the market price of a bond increases.
C. A decrease in a firm's WACC will increase the attractiveness of the firm's investment options.
D. Beta is used to compute the return on equity and the standard deviation is used to compute the return on preferred.
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