The cost of capital should reflect the average cost of the various sources of long-term funds a firm uses to acquire assets.

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The cost of capital is the average cost of all the sources of long-term funds a firm uses to acquire assets, such as debt, equity, and retained earnings. It is important for the firm to consider the weighted average cost of capital (WACC) when making investment decisions, as it represents the minimum return the company must earn in order to satisfy its investors and maintain its financial stability.

The Cost of Capital Should Reflect the Average Cost of the Various