[jyd]

The theory underlying the cost of capital is primarily concerned with the cost of
a) Long-term funds and old funds.
b) Short-term funds and new funds.
c) Long-term funds and new funds.
d) Any combination of old or new, short-term or long-term funds.

exact same question, Becker says the answer is d), and wiley says it’s c). which one should i go for? please help!

[CoachEmUp]

Google: The theory underlying the cost of capital is primarily concerned with the cost of
A. Long-term funds and old funds.
B. Short-term funds and new funds.
C. Long-term funds and new funds.
D. Short-term funds and old funds.
SHOW RESULT
Correct – Your answer is correct.
Detailed Answer
Answer (C) is correct. The theory underlying the cost of capital is based primarily on the cost of long-term funds and the acquisition of new funds. The reason is that long-term funds are used to finance long-term investments. For an investment alternative to be viable, the return on the investment must be greater than the cost of the funds used. The objective in short-term borrowing is different. Short-term loans are used to meet working capital needs and not to finance long-term investments.

This answer seems to make sense to me.

Licensed CPA in Michigan

Used Wiley CPA Excel Throughtout
FAR- 90 (7/17)
AUD- 89 (8/17)
REG- 92 (10/17)
BEC- 94 (11/17)

[Author]

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