The company cost of capital, when the firm has both debt and equity financing, is called the
A)cost of debt.
B)cost of equity.
C)weighted average cost of capital (WACC).
D)return on equity (ROE).

Question

Quizplus · Accepted Answer

The weighted average cost of capital (WACC) takes into account both the cost of debt and the cost of equity financing, and is therefore the appropriate measure for the company's cost of capital. The cost of debt (A) and cost of equity (B) are important factors in calculating the WACC, but are not sufficient on their own to determine the company's cost of capital. Return on equity (ROE) (D) is a measure of the profitability of equity financing, but does not take into account the cost of debt or the overall cost of capital for the company.

The Company Cost of Capital, When the Firm Has Both