Which of the following statements regarding cost of capital is incorrect ? A. Th

Question

Which of the following statements regarding cost of capital is incorrect?

A. The beta coefficient of the firm’s stock is its cost of equity.

B. The return that lenders (bondholders) require on their loaned funds to the firm
is the cost of debt.

C. A firm’s capital structure weights are the proportions of the market value of
its assets financed via debt, common stock, and preferred stock.

D. The overall cost of capital that covers the firm's costs of equity, preferred
stock, and after-tax debt is called the weighted average cost of capital (WACC).

Explanation / Answer

ANSWER:

B. The return that lenders (bondholders) require on their loaned funds to the firm
is the cost of debt.

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