Question

What does the cost of capital represent?

a. The weighted average of the cost of borrowing on a long and short-term basis

b. The weighted average of fixed and variable costs

c. The weighted average of debt and equity fiancing

d. The weighted average of the incremental cash inflows and outflows

Answer 1

What does the cost of capital represent?

C. The weighted average of debt and equity financing

Explanantion

The cost of capital is the cost of a company's funds both debt & equity, or from invetor's perspective "the required rate of return" on a portfolio company's existing securities. It is generall used to evaluate new projects of company.

a. The weighted average of the cost of borrowing on a long and short - term basis.

This does not include equity so it does not represents cost of capital.

b. The weighted average of fixed and variable cost.

Fixed and variable does not represnts cost of equity. Cost of debt & equity fund represents cost of capital

d. The weighted average of the incremental cash inflows and outflows.

Cash inflows and outflows does not represent cost of capital. Cost of debt & equity funds represnts cost of capital.