A firm's cost of capital represents a firm's weighted average cost of financing.

Question

Quizplus · Accepted Answer

A firm's cost of capital is calculated by taking into consideration the cost of all different types of financing that the firm uses, including debt, equity, and any other sources of financing. The cost of each type of financing is weighted by the proportion of that financing in the firm's overall capital structure, and the resulting weighted average cost is the firm's cost of capital.

A Firm's Cost of Capital Represents a Firm's Weighted Average