When calculating a firm's cost of capital, all of the following are true except that *

1 point

The cost of capital of a firm is the weighted average cost of its various financing components.

 

The calculation of the cost of capital should focus on the historical costs of alternative forms of financing rather than market or current costs.

 

Costs of debt should be expressed as after-tax costs.

 

The time value of money should be incorporated into the calculations.

 

Q. When calculating a firm's cost of capital, all of the following are true except that *

The cost of capital of a firm is the weighted average cost of its various financing components.

The calculation of the cost of capital should focus on the historical costs of alternative forms of financing rather than market or current costs.

Costs of debt should be expressed as after-tax costs.

The time value of money should be incorporated into the calculations.

The cost of capital of a firm is calculated by considering all the component of the finance by considering the weight of the fund used in financing.

1. The calculation of the cost of capital should focus current or market costs rather than the historical costs. It is important to consider the current market cost to reveal the most accurate cost of capital.
2. Costs of debt should be expressed as after-tax costs because interest on debt are allowed as an expense while computing the tax payments. Cost of debt are always considered after giving the tax effect.
3. The time value of money should be taken into the calculations while revealing the cost of capital because the value of money not remain same over the time period.