Question

A regional chain of department stores knows that its stockholders expect a return on their investment. The expected return that stockholders anticipate translates into the company’s __________. Essentially, this is the amount that the investment funds are costing the firm. Multiple Choice return on sales return on debt leverage cost of capital

Answer 1

The expected return stockholders anticipate is known as the company's cost of capital, which is the cost the company incurs for using investment funds, factoring in dividends and capital gains.

Step-by-step explanation:

In economics and accounting, the cost of capital is the cost of a company's funds, or from an investor's point of view is "the required rate of return on a portfolio company's existing securities". It is used to evaluate new projects of a company.

In this case, the expected return that stockholders anticipate translates into the company’s cost of capital. This includes earnings through dividends as well as capital gains, which is the increase in the value of the stock between when it is bought and when it is sold.

A shareholder of corporate stock refers to an individual or legal entity that is registered by the corporation as the legal owner of shares of the share capital of a public or private corporation.

Investment decisions should be made considering this cost, as it reflects the opportunity cost of the funds employed.