In large expansion programs, increased riskiness and flotation cost associated with project can cause_______________?
Correct answer: A. Rise in marginal cost of capital
- A. Rise in marginal cost of capital
- B. Fall in marginal cost of capital
- C. Rise in transaction cost of capital
- D. Rise in transaction cost of capital
Explanation
A large expansion can increase the project's risk and require flotation expenses such as underwriting and issuance costs. These raise the additional cost of obtaining new funds, known as the marginal cost of capital.
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About Business Finance
Business finance explains how organisations plan, obtain and use money while balancing risk, return and liquidity. Topics include financial statements, time value of money, budgeting, working capital, capital structure, sources of finance, investment appraisal and cost of capital. Capital budgeting evaluates long-term projects, whereas working capital manages day-to-day operations.
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