The cost of capital and the cost of debt should be identical when economic profits are positive.

Question

Quizplus · Accepted Answer

The cost of capital and the cost of debt can be different even when economic profits are positive. The cost of capital represents the cost of all sources of financing, including debt and equity, while the cost of debt only represents the cost of borrowing funds. It is possible for a company to have a higher cost of capital than the cost of debt, especially if it has a high level of equity financing.

The Cost of Capital and the Cost of Debt Should