The cost to a firm of each type of capital is dependent upon ________.
A) the risk-free rate of bonds plus the business risk of the firm
B) the risk-free rate of each type of capital plus the business risk of the firm
C) the risk-free rate of each type of capital plus the financial risk of the firm
D) the risk-free rate of each type of capital plus the business risk and the financial risk of the firm

Question

Quizplus · Accepted Answer

The cost to a firm of each type of capital is dependent upon the risk-free rate of each type of capital plus the business risk and the financial risk of the firm. This encompasses the basic cost of borrowing (risk-free rate) and the additional risks associated with the firm's operations (business risk) and its capital structure (financial risk).

The Cost to a Firm of Each Type of Capital