The cost of capital acts as a major link between a firm's long-term investment decisions and the wealth of the firm's owners as determined by the market value of their shares.

Question

Quizplus · Accepted Answer

The cost of capital is important in determining whether or not a project or investment is financially feasible and will generate returns that are greater than the cost of acquiring the necessary capital. If the cost of capital is too high, then it may not be worth pursuing the investment, as it could end up being a drain on the firm's resources and negatively impact the market value of the firm's shares. Therefore, the cost of capital is a key factor in linking a firm's investment decisions to the wealth of its owners.

The Cost of Capital Acts as a Major Link Between