1. Which of the following statements regarding cost of capital is incorrect?
A) Cost of capital essentially reflects how the market views the firm’s risk.
B) The overall cost of capital that covers the firm's costs of equity, preferred stock, and after-tax debt is called the weighted average cost of capital (WACC).
C) The return that lenders (bondholders) require on their loaned funds to the firm is the cost of debt.
D) For the weights of the capital structure components, firms should use the proportions of the book value, not the market value, of debt, common stock, and preferred stock.
2. Suppose that the inventory period is 40 days, the accounts payable period is 15 days, and the cash cycle is 35 days. What is the accounts receivable period?
A) 10 days
B) 25 days
C) 35 days
D) 50 days