The cost of capital is defined as the:
A)weighted average of the returns demanded by the company's stockholders and lenders.
B)sum of liabilities and stockholders' equity accounts.
C)rate of return demanded by the stockholders divided by the rate of return demanded by lenders.
D)rate of return demanded by stockholders times the rate of return demanded by lenders.

Question

Quizplus · Accepted Answer

The cost of capital is determined by calculating the weighted average of the returns demanded by the company's stockholders and lenders. This reflects the cost of all sources of financing used by the company, as each source of funds has a different cost associated with it. The formula for determining the cost of capital is: Cost of Capital = (Weighted Average Cost of Debt x Proportion of Debt) + (Weighted Average Cost of Equity x Proportion of Equity).

The Cost of Capital Is Defined as The