10. Cost of capital is __________________.
A) Lesser than the cost of debt capital.
B) Equal to the last dividend paid to the equity shareholders.
C) Equal to the dividend expectations of equity shareholders for the coming year.
D) None of the above10. Cost of capital is __________________.
A) Lesser than the cost of debt capital.
B) Equal to the last dividend paid to the equity shareholders.
C) Equal to the dividend expectations of equity shareholders for the coming year.
D) None of the above
Answers
Answer:
Option d
Step-by-step explanation:
Cost of Capital-The minimal return required to justify completing a capital budgeting project, such as building a new factory, is calculated by a company's cost of capital.
Analysts and investors use the term "cost of capital," but it always refers to a determination of whether the cost of a proposed decision is justified. The phrase can also apply to an assessment of an investment's prospective return in proportion to its cost and hazards.
To fund business expansion, many organizations utilize a mix of debt and equity. The weighted average cost of all capital sources is used to calculate the overall cost of capital for these businesses. The weighted average cost of capital is the term used to describe this (WACC)
Characteristics of cost of capital
- This is not a fee; rather, it is the minimum profit margin on various initiatives.
- It denotes the lowest possible return.
- The cost of capital is a financial and commercial risk-reward.
- Any institution's cost of capital is made up of three components: 1. return at zero risk, 2. business risk premium, and 3. financial risk premium.
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