Cost of capital can best be defined as:
A) compensation demanded by the investor of a firm before taxes and transaction costs.
B) compensation demanded by the investor of a firm before taxes, transaction costs, and interest expense.
C) compensation demanded by the investor of a firm after taxes and transaction costs.
D) compensation demanded by the investor of a firm before taxes only.

Question

Quizplus · Accepted Answer

The cost of capital is essentially the return that investors demand for committing their capital to a firm, taking into account the risks involved, after all taxes and transaction costs have been accounted for. This ensures that the measure reflects the net cost to the company of raising new capital.

Cost of Capital Can Best Be Defined As