28. The cost of capital is: a. the minimum required return on a new investment.

Question

28. The cost of capital is:

a. the minimum required return on a new investment.

b. another term for the market risk premium.

c. the return on the overall market.

d. another term for the risk-free rate of return.

e. the maximum cost of issuing a new security.

Part B: Which one of the following is an example of systematic risk?

an increase in federal tax rates

employee walkout in protest of a firm's promotion policies

surprise firing of a firm's chief financial officer

acquisition of a competitor by a retail firm

layoffs by a major retailer

an increase in federal tax rates

employee walkout in protest of a firm's promotion policies

surprise firing of a firm's chief financial officer

acquisition of a competitor by a retail firm

layoffs by a major retailer

Explanation / Answer

Answer: The cost of capital is the opportunity rate of return which the company has been forgone for the current investment. So The cost of capital is the return on the over all market.

The minimum required return on a new investment is the IRR.

Paet B: Systematic risk are those risk which we can't control or monitor i.e which is not in our hand. The reisk which is not diversifiable.

So the Increase in federal tax rates is a systematic risk.

Related Questions

Navigate

• Browse (All)
• Browse 2
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.