Cost of capital is equal to required return rate on equity in case if investors are only__________?
Correct answer: B. Common stockholders
- A. Valuation manager
- B. Common stockholders
- C. Asset seller
- D. Equity dealer
Explanation
If the firm's investors consist only of common stockholders, the firm's required overall return is the required return on common equity. With debt or preferred stock also present, cost of capital becomes a weighted combination of financing costs.
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About Business Finance
Business finance explains how organisations plan, obtain and use money while balancing risk, return and liquidity. Topics include financial statements, time value of money, budgeting, working capital, capital structure, sources of finance, investment appraisal and cost of capital. Capital budgeting evaluates long-term projects, whereas working capital manages day-to-day operations.
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