Question

The average cost associated with each additional dollar of financing for investment projects is:_________

a) CAPM required return.
b) the incremental return.
c) the marginal cost of capital.
d) the component cost of capital.

Answer 1

c) the marginal cost of capital

Step-by-step explanation:

The cost which a company bears to add one dollar / unit of capital is called marginal cost. We know that the company raise funds through different sources which can be debt from banks and stocks (common and preferred). This process of raising capital involves a cost which is termed as marginal cost of capital or the cost required to raise an additional unit of capital.