Which of the following statements is TRUE when estimating cost of capital? a) The cost of...
Which of the following statements is TRUE when estimating cost of capital?
a) The cost of debt should be based on the coupon rate of current debt.
b) The cost of equity capital should be based on the historical average cost of equity.
c) Use either target capital structure weights or market value capital structure weights to estimate the WACC.
d) All of the above are true.
Homework Answers
Use either target capital structure weights or market value capital structure weights to estimate the WACC.
Statement a is incorrect because we should use yield to maturity
Statement b is incorrect because we should use new cost of equity and not historic cost of equity
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