Marginal cost of capital

Question

Quizplus · Accepted Answer

The marginal cost of capital recognizes that the cost of raising additional funds may increase as more capital is already in use. This is because as more funds are raised, investors may demand higher returns and the company may have to use more expensive forms of financing. This is different from the weighted average cost of capital, which assumes a constant cost of capital for all financing sources. Option C is incorrect as the marginal cost of capital can be calculated regardless of whether retained earnings are available or not.

Marginal Cost of Capital