Cost of Capital MCQ – Multiple Choice Questions

Cost of Capital MCQ – Multiple Choice Questions

1-Cost of capital is a ___ concept in financial management.

(A) central

(B) departmental

(C) dual

(D) none of the above

 

2-In modern times, cost of capital is widely used as basis of ___ .

(A) investment projects

(B) evaluating the alternative sources of finance

(C) both (A) and (B)

(D) none of the above

 

3-From Investors’ View Point, cost of capital may define as “the measurement of the ____ made by him in capital formation.”

(A) investment

(B) sacrifice

(C) expenditure

(D) none of the above

 

4-From Firms Point, cost of capital is the minimum ___ required needed to justify the use of capital.

(A) investment

(B) amount

(C) rate of return

(D) none of the above

 

5- Cost of capital is that minimum ___, which a firm must and is expected to earn on its ___ so as to maintain the market value of its shares.

(A) investments, rate of return

(B) rate of return, investments

(C) expenditure, rate of return

(D) rate of return, expenditure

 

6-Cost of capital is also known as

(A) composite cost of capital

(B) weighted average cost of capital

(C) combined cost of capital

(D) all of the above

 

7- Cost of capital comprises of the following component(s):

(A) The risk less cost of the particular type of financing

(B) The business risk premium

(C) The financial risk premium

(D) All of the above

 

8-Cost of capital is expressed in terms of ___

(A) percentage

(B) fraction

(C) whole number

(D) any of the above

 

9-In the Net Present Value (NPV) method, an investment project is accepted, if the present value of cash inflows are ___ the present value of cash outflow.

(A) less than

(B) greater than

(C) equal to

(D) any of the above

 

10-If Internal Rate of Return (IRR) technique for capital budgeting evaluation, investment should be accepted only when cost of capital is ___ the calculated IRR.

(A) less than

(B) greater than

(C) equal to

(D) any of the above

 

11- If the actual profitability is ___ the projected cost of capital, then the financial performance may said to be satisfactory.

(A) more than

(B) less than

(C) equal to

(D) none of the above

 

ANSWERS:

1-(A), 2-(C), 3-(B), 4-(C), 5-(B), 6-(D), 7-(D), 8-(A), 9-(B), 10-(A), 11-(A)