Rate of required return by debt holders is used for estimation the__________?
Correct answer: A. Cost of debt
- A. Cost of debt
- B. Cost of equity
- C. Cost of internal capital
- D. Cost of reserve assets
Explanation
The return required by lenders is the firm’s cost of debt because it represents the market’s required compensation for supplying borrowed funds. Cost of equity instead refers to the return required by shareholders.
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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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