Which of the following is NOT correct?A) The cost of equity is the return that equity investors require on their investment in the firm.B) The cost of equity can be found by either the dividend growth approach or the SML approach.C) The cost of debt is the return that lenders require on the firm's debt.D) If the firm has preferred stock in its capital structure, the cost of preferred stock should be included in the cost of capital.E) Book value capital structure weights should be used to calculate the WACC rather than market value weights.

Question

Which of the following is NOT correct?A)  The cost of equity is the return that equity investors require on their investment in the firm.B)  The cost of equity can be found by either the dividend growth approach or the SML approach.C)  The cost of debt is the return that lenders require on the firm's debt.D)  If the firm has preferred stock in its capital structure, the cost of preferred stock should be included in the cost of capital.E)  Book value capital structure weights should be used to calculate the WACC rather than market value weights.

basetsana nogane · Accepted Answer

Final Answer : E, Explanation :  The correct approach to calculating the Weighted Average Cost of Capital (WACC) involves using market value weights rather than book value weights. This is because market values more accurately reflect the current cost of capital from the perspective of investors and the market.

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