The Cost of Capital

question 89

Multiple Choice

The cost of capital:

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

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Definitions:

Cash Receipts

The collection of money, including cash, checks, and credit card payments, received by a business during a period.

Minimum Cash Balance

The lowest amount of cash that a company or individual aims to hold in order to meet operational and transaction needs.

Net Operating Income

The profit generated from a business's core operations, excluding expenses and revenues from non-operating activities.

Estimated

Refers to approximate calculations or judgments about figures or values that are not precisely known.