Scenario 9.2
Consider a publicly held firm (one whose stock shares are traded on the stock exchange) that earned revenue worth $350 million and incurred land, labor, and debt costs worth $320 million. The stockholders who have invested a total of $100 million in this firm could have earned 10 percent return on other comparable investments.
-According to the information in Scenario 9.2, the cost of equity capital is:
A)$112 million.
B)$30 million.
C)$20 million.
D)$120 million.
E)$10 million.

Question

Quizplus · Accepted Answer

The cost of equity capital is the opportunity cost of the stockholders' investment, which is 10% of $100 million, equaling $10 million.

Scenario 9.2 Consider a Publicly Held Firm (One Whose Stock Shares Are