What does the marginal cost of capital generally represent?
Correct answer: A. The cost of the next unit of finance raised
- A. The cost of the next unit of finance raised
- B. The average cost of all existing finance
- C. The historical cost of previously issued shares
- D. The accounting cost of retained earnings
Explanation
Marginal cost of capital is the cost of obtaining one additional unit of finance. It may differ from the average cost because new funds can have different issue and risk characteristics.
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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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