Use of the marginal cost of capital

a. None of these options are correct.

b. recognizes that the return from the last dollar of funds generated should be greater than or equal to the cost of the last dollar of funds raised.

c. acknowledges that when retained earnings are used up as a source of equity, the cost of capital rises as new common stock is sold to support more growth and recognizes that the return from the last dollar of funds generated should be greater than or equal to the cost of the last dollar of funds raised.

d. acknowledges that when retained earnings are used up as a source of equity, the cost of capital rises as new common stock is sold to support more growth.

Question

Jaylon Conrad

Business

11 April, 17:43

Use of the marginal cost of capital

a. None of these options are correct.

b. recognizes that the return from the last dollar of funds generated should be greater than or equal to the cost of the last dollar of funds raised.

c. acknowledges that when retained earnings are used up as a source of equity, the cost of capital rises as new common stock is sold to support more growth and recognizes that the return from the last dollar of funds generated should be greater than or equal to the cost of the last dollar of funds raised.

d. acknowledges that when retained earnings are used up as a source of equity, the cost of capital rises as new common stock is sold to support more growth.

+1

Answers (1)

Know the Answer?

Lisa · Answer 1

The correct answer is the option B: recognizes that the return from the last dollar of funds generated should be greater than or equal to the cost of the last dollar of funds raised.

Explanation:

To begin with, the concept of ''marginal cost of capital'' refers to the composite rate of return that is required by the shareholders and the debt-holders in order to establish a new investment in the actual company. Moreover, this type of cost relates to the weighted average cost of the last dollar of new capital raised by the company and is has the necessity of being greater than or at least equal to the cost of the last dollar of funds raised due to the fact that only in that way the investors will consider to invest again in a new project for the company.