The cost of capital involves a blending of costs of all sources of capital funds, both debt and equity

Question

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The cost of capital takes into account the costs of both debt and equity, as it is the average cost of all sources of funds used by a company. Net present value method is a tool used to determine the acceptability of an investment project by comparing the present value of expected cash inflows to the initial investment. The cost of capital can be used as a screening tool to assess whether a potential investment yields a return greater than the cost of capital. Simple rate of return calculates the rate of return on an investment as a percentage of the initial investment, and is another method to evaluate the profitability of a project or investment.

The Cost of Capital Involves a Blending of Costs of All