Which of the following best describes what the cost of capital should reflect?

A) The cost of capital should reflect the average cost of the various sources of short-term funds a firm uses to acquire assets.
B) The cost of capital should reflect the average cost of the various sources of long-term bonds a firm uses to acquire fixed assets.
C) The cost of capital should reflect the average cost of the various sources of long-term funds a firm uses to acquire assets.
D) The cost of capital should reflect the average cost of the various sources of long-term capital, as well as supplier capital, the firm uses to acquire fixed assets.

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Given Kumako · Accepted Answer

Final Answer : C, Explanation :  The cost of capital should reflect the average cost of the various sources of long-term funds a firm uses to acquire assets. This includes sources such as equity, debt, and preferred stock. Short-term sources of funds are not considered since they are not typically used to acquire fixed assets. Supplier capital is also not included in the calculation since it is not a long-term source of funds.

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