Cost of capital is __________________.Options :Lesser than the cost of debt capitalEqual to the last dividend paid to the equity shareholdersEqual to the dividend expectations of equity shareholders for the coming yearNone of the above
Question
Cost of capital is __________________.Options :Lesser than the cost of debt capitalEqual to the last dividend paid to the equity shareholdersEqual to the dividend expectations of equity shareholders for the coming yearNone of the above
Solution 1
The cost of capital is none of the above. The cost of capital is the return a company needs to generate for its investors (equity owners and debt lenders) to cover the cost of their investment. It is not necessarily lesser than the cost of debt capital, equal to the last dividend paid to the equity shareholders, or equal to the dividend expectations of equity shareholders for the coming year. It is determined by the market and depends on the risk of the investment.
Solution 2
The cost of capital is none of the above. The cost of capital is the return a company needs in order to take on a capital project, such as purchasing new equipment or constructing a new building. It is not necessarily lesser than the cost of debt capital, equal to the last dividend paid to the equity shareholders, or equal to the dividend expectations of equity shareholders for the coming year. It is determined by the market and depends on the risk of the investment.
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