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    Question

    The cost of capital for a firm _______.

    A Refers to the internal rate of return Correct Answer Incorrect Answer
    B Is the return required on the total assets of a firm Correct Answer Incorrect Answer
    C Varies inversely with the overall cost of debt Correct Answer Incorrect Answer
    D Represents the opportunity cost of using capital in a particular project or investment Correct Answer Incorrect Answer
    E None of the above Correct Answer Incorrect Answer

    Solution

    The cost of capital is the rate of return that a company must earn on its investments in order to satisfy its investors or creditors. It is the minimum return that a company must generate to compensate its investors or creditors for the risk they are taking by investing in or lending to the company. The cost of capital is calculated by taking a weighted average of the cost of debt and the cost of equity financing.

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