A. Because the cost of old funds is a sunk cost and of no relevance for decision-making purposes. Similarly, short-term funds are used for working capital or other temporary purposes, and there is less concern with the cost of capital and the way it compares with the return earned on the assets borrowed.

B. Because the concern is with the cost of new funds; the cost of old funds is a sunk cost and of no relevance for decision-making purposes.

C. Because the cost of short-term funds is not usually a concern for investment purposes.

D. 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.