Question

1(a.) (TRUE or FALSE?) The weighted average cost of capital (ka or WACC) is based on the costs of debt only because it is the cheapest sources of the capital.

1(b). (TRUE or FALSE?) All independent projects with NPVs greater than or equal to zero should be accepted.

1(c). (TRUE or FALSE?) A convertible bond holder may send it back to the issuing company and convert it into a certain number of shares of that company’s common stock.

Answer 1

1(a)

The weighted average cost of capital (ka or WACC) is based on cost of individual capital which includes, cost of debt, cost of equity and cost of preferred stock. it is not only based on cost of debt.

Statement is false.

1(b)

All independent projects with NPVs greater than or equal to zero should be accepted if teh comapny have unlimited capital.

Statement is true.

1(c)

A convertible bond holder may send it back to the issuing company and convert it into a predefined specified number of shares of that company’s common stock.

statement is true.