If a company's cost of capital is less than the required return on equity, then the firm:

Question

Quizplus · Accepted Answer

A company's cost of capital includes both the cost of equity and the cost of debt. If the cost of capital is less than the required return on equity, it means that the cost of debt is lower than the cost of equity. This suggests that the company has debt in its capital structure, which is cheaper than issuing only equity.

If a Company's Cost of Capital Is Less Than the Required