The firm's cost of capital is a weighted average of the specific costs of debt and equity and preferred stock.

Question

Quizplus · Accepted Answer

The firm's cost of capital is calculated by weighting the costs of each source of financing (debt, equity, and preferred stock) according to their respective proportions in the company's capital structure. Therefore, the cost of capital is a weighted average of each specific cost.

The Firm's Cost of Capital Is a Weighted Average of the Specific