Question

Question 1 of 10 Check My Work (5 remaining) Companies issue bonds, preferred stock, and common equity to raise capital to invest in capital budgeting projects. Capital is a necessary factor of production, and like any other factor, it has a cost. This cost is equal to the select required return on the applicable security. The rates of return that investors require on bonds, preferred stocks, and common equity represent the costs of those securities to the firm. Companies estimate the required returns on their securities, calculate a weighted average of the costs of their different types of capital, and use this average cost for capital budgeting purposes. The firm's primary financial objective is to Select- shareholder value. To do this, companies invest in projects that earn Select their cost of capital. So, the cost of capital is often referred to as the Select- rate. When calculating the weighted average cost of capital (WACC), our concern is with capital that must be provided by Select -interest-bearing debt, preferred stock, and common equity. Select- and accruals, which arise spontaneously from operations when capital budgeting projects are undertaken, are not included as part of investor- supplied capital because they do not come directly from investors Which of the following would be included in the calculation of total invested capital? Choose the response that is most correct. a. Notes payable b. Texes payable c. Accounts payable d. Responses a and would be included in the calculation of total invested capital. e. None of the above would be included in the calculation of total invested capital. The correct response is Select Check My Work (5 remaining)

1. security analyst or marginal investors or company vendors
2.minimize or maintain the initial level of or maximize
3. more than or less than or equal to
4.crossover or hurdle or indifference
5.managers or vendors or investors
6. notes payable accounts payable or long term debt
7.a or b or c or d or e

Answer 1

Companies issue bonds, preffered stock, and common equity to raise capital to invest in capital budgeting projects. capital is a necessary factor of production, and like any other factor, it has a cost. this cost is equal to the marginal investors required return on the applicable security. the rates of return that investors require on bonds, preffered stocks and common equity represents the costs of those security to the firm. companies estimate the required returns on their securities, calculate a weighted average of the costs of their different types of capital, and use the average cost for capital budgeting purposes.

the firm's primary financial objective is to maximize shareholder value. to do this, companies invest in projects that earn more than their cost of capital. so, the cost of capital is often referred to as the hurdle rate. when calculating the weighted average cost of capital (WACC), our concern is with capital that must be provided by investors -- interest - bearing debt, preferred stock and common equity. accounts payable and accruals, which arise spontaneously from operation when capital budgeting projects are undertaken, are not included as part of investor - supplied capital because they do not come directly from investors.

Following are included in the calculation of total invested capital :

e. none of the above would be included in the calculation of total invested capital.