Q1. Why do we use the overall cost of capital for investment decisions even when only one source of capital will be used (e.g., debt)?
Q2. In computing the cost of capital, do we use the historical costs of existing debt and equity or the current costs as determined in the market? Why?
Q3. What are the two sources of equity (ownership) capital for the firm?
Q4. Why is the cost of retained earnings the equivalent of the firm's own required rate of return on common stock (Ke )?