Which of the following may be true of the cost of debt and cost of equity? a: th

Question

Which of the following may be true of the cost of debt and cost of equity?

a: the weighted average cost of capital is the computed by assigning weights to the cost of the debt and cost of equity of a firm

b: the cost of debt for a firm is always equal to the cost of equity to the firm.

c: the cost of internally generated equity for a firm is greater than the cost of externally generated equity funds for the firm.

d: the cost of internally generated equity for a fir is less than the cost of debt for the firm

e: the cost of externally generated equity is the sum of the cost of debt and the cost of retained earnings

Explanation / Answer

Cost of the Debt: This is souce of the fund whic are finance from the market and these debt are carrying some interest and this interest will be reperesent as Cost of the debt.

Cost of Equity: This is an cost of carrying equity of a firm

Cost of carrying of the equity and cost of the debt both are never be the same becasue the cost of debt is tax deuctible and cost of equity have not the tax deductible.

As per the above , Option A is the correct option.

Answer = Option A = the weighted average cost of capital is the computed by assigning weights to the cost of the debt and cost of equity of a firm

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