An important limitation of comparing a firm's performance to its cost of capital occurs when a firm is
A) privately held.
B) an IPO.
C) an entrepreneurial venture.
D) experiencing below normal economic performance.

Question

Quizplus · Accepted Answer

A firm's cost of capital is the minimum rate of return that a firm must earn on its investments in order to satisfy its investors. When a firm is privately held, it does not have to disclose its financial information to the public. This makes it difficult to compare the firm's performance to its cost of capital.

An Important Limitation of Comparing a Firm's Performance to Its