The Cost of Capital Is the Simple Average Rate of Return

question 87

True/False

The cost of capital is the simple average rate of return that a company must pay to its long-term creditors and the shareholders.

---

Definitions:

Cash Basis

An accounting method where revenues and expenses are recognized when cash is received or paid, not when incurred.

Operations

The day-to-day activities required for the running of a business or an organization, focusing on the production and delivery of goods and services.

Noncash Investing

Transactions that involve the acquisition or disposal of non-monetary assets through means other than direct cash payment.

Financing Activity

Operations related to the company's financing, including issuing shares, bonds, and managing equity, aimed at raising, refunding, or repaying the company's capital.