The Cost of Capital Is the Rate of Return a Firm

question 70

True/False

The cost of capital is the rate of return a firm must earn in order to meet the demands of its lenders and expectations of its equity holders.

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Definitions:

Equity Method

A method of accounting for investments in which the investment is initially recorded at cost and subsequently adjusted for the investor’s share of the investee’s net income or losses and dividends received.

Significant Influence

It refers to the power to participate in the financial and operating policy decisions of an investee but not control those policies.

Trading Security

A financial asset that is bought and sold with the intention of generating profits from short-term fluctuations in its price.

Retained Earnings

Profits that a company has kept or retained rather than distributing to shareholders as dividends.