The return an investor in a security $($a bond or a share of stock$)$ receives is the cost of that security to the company that issued it$.$TrueFalse$$Due to the fact that a firm$$s capital comes from different sources, a firm$$s cost of capital is a:Geometric AverageWeighted AverageArithmetic average$$The weighted average cost of capital is interpreted as the required rate of return on:The firm$$s debtThe firm$$s equityThe firm overall$$The weighted average cost of capital is used to:Discount future cash flows from investment projectsDetermine the dividend paid on common stockDetermine the dividend paid on preferred stock$$Following is the formula for the weighted average cost of capital:$$WACC $=$ r LTD $(1-$tax rate$)$ w LTD $+$ r PS w PS $+$ r CS w CSWhere:LTD is long term debtPS is preferred stockCS is common stock$$In the formula for the weighted average cost of capital, the weights are determined by the firm$$s:Capital structureChief Financial OfficerProjected sources of capital for a particular project$$In the formula for the weighted average cost of capital, the cost of debt is adjusted for:InterestTaxesFlotation costs$$If a firm$$s capital is distributed in equal proportions, meaning $25\%$ long term debt, $25\%$ short term debt, $25\%$ preferred stock and $25\%$ common stock, the WACC is equal to the:Arithmetic average of the required return on each of the componentsGeometric average of the required return on each of the componentsThe standard deviation of the required return on each of the components$$The WACC accounts for the fact the each of the components of a firm$$s capital structure has a different:CostInterest rateTax rate$$The required return or cost of long term debt is equal to the after$-$tax cost of outstanding:Common StockPreferred StockBonds$$The Discounted Payback Period method to evaluate investments is more accurate than simple Payback Period because it considers:Risk and returnThe time value of moneyThe Fisher Effect$$The most widely used methods to evaluate investment projects are:NPV and IRRMIRR and Discounted Payback PeriodIRR and Discounted Payback Period$$The Net Present Value of an investment project is determined by using which of the following to discount future cash flows from the project:The market rate of interestThe coupon rate on the firm$$s bondsThe weighted average cost of capital$$If a firm accepts a new investment project, it may be required to issue, or float, new bonds and stocks at some cost which are called:Interest costsInvestment costsFlotation costs$$A firm should undertake an investment project if the NPV is:PositiveNegativeZero$$The Internal rate of return $($IRR$)$ is the discount rate that results in a:Positive NPVNegative NPVZero NPV$$The IRR is the discount rate at which the investment in the project is equal to the:The discounted cash flows from the projectThe salvage value of the projectThe flotation costs of the project$$Based on the IRR Rule, an investment is acceptable if the IRR exceeds the:Weighted Average Cost of CapitalMarket Interest RatesThe Risk$-$Free Rate of Return$$The IRR and NPV investment criteria always result in the same accept or reject decision for an investment project.TrueFalse$$If two projects are not independent, they are said to be:Risk freeMutually exclusiveDependent$$When is a conflict in the NPV and the IRR a problem:When the projects are mut