Question

The cost of capital:

A) is the expected rate of return on a capital investment.
B) is the interest rate that the firm pays on a loan from a bank or insurance company.
C) for risky investments is normally higher than the firm's borrowing rate.
D) is an opportunity cost determined by the risk-free rate of return.

Answer 1

Option A: is the expected rate of return on a capital investment.

Step-by-step explanation:

A capital is usually the money used to start up any business.

Cost of capital is simply cost of company's long-term sources of funds: debt, preferred equity and others. It shows how the market views the risk of the firm's assets. A firm must earn required return to compensate investors for the financing the business.