The cost of capital includes both any interest payments in loans as well as any forgone interest on savings used to finance the business.

Question

Quizplus · Accepted Answer

The cost of capital takes into account the interest payments made on loans, as well as the opportunity cost of using savings to fund the business (i.e. the potential interest that could have been earned if the savings were invested or deposited in an interest-bearing account instead).

The Cost of Capital Includes Both Any Interest Payments in Loans