In calculating the cost of capital for an average firm,which of the following statements is true?

Question

Quizplus · Accepted Answer

The cost of capital for a firm is a weighted average of the cost of each type of capital, based on its proportion in the capital structure. Common stock typically has a higher cost than bonds or retained earnings because it involves a higher level of risk for investors. Preferred stock also generally has a higher cost than common stock due to its preference in receiving dividends. However, since the cost of each type of capital can vary depending on market conditions and individual company factors, it's important to determine the specific cost of each before calculating the overall cost of capital.

In Calculating the Cost of Capital for an Average Firm,which