The component costs of capital are market-determined variables in as much as they are based on investors' required returns.

Question

Quizplus · Accepted Answer

The component costs of capital, including the cost of debt, cost of equity, and cost of preferred stock, are determined by market factors such as investors' required rates of return. These rates are based on various factors including inflation, interest rates, risk levels, and overall market conditions. Therefore, the component costs of capital are market-determined variables.

The Component Costs of Capital Are Market-Determined Variables in as Much