For the purpose of estimating the ﬁrm's cost of capital, one cannot look only at the coupon rate on
the ﬁrm's existing debt.

Question

Quizplus · Accepted Answer

The cost of capital takes into consideration all forms of financing used by the firm, including equity, preferred stock, and debt with varying coupon rates and maturity dates. Therefore, looking only at the coupon rate on existing debt would not provide a comprehensive estimate of the firm's cost of capital.

For the Purpose of Estimating the ﬁRm's Cost of Capital