A company's cost of capital is a weighted average of the returns demanded by debt and equity investors. The weighted average is the expected rate of return investors would demand on a portfolio of all the firm's outstanding securities.
- Exactly what sources of financing would be included in a typical company's weighted average cost of capital?
- Which source would be most common for a typical company in today's business environment?
- Which source would normally be most costly? Which source would cost the company the least?
- When would the weighted average cost of capital not be appropriate for assessing a proposed project?