Question

1-which of the following best describes what the financial managers must do to estimate the MCC scheduale?

a) calculate the costs of capital up to and after the points of change on cost

b) calculate the costs of capital up to the points of change in cost

c) calculate the costs of capital after the points of change in costs

d) assess at what point a firm's ke increases

2- you get a 25 years loan of $150000 with an 8% annual interest rate what are the annual payments?

a) $14052

b) $2052

c)$13965

d)$13427

Answer 1

1]

(a) is correct. To estimate the MCC schedule, the cost of capital is required to be calculated at every level of capital, that is, before and after every break point.

Therefore (b) and (c) are incorrect because these will estimate the MCC schedule only partially.

(d) is incorrect because ke is only one part of cost of capital, and determining the level where it increases is not sufficient to estimate the MCC schedule.