The correct answer is: A. All sources.
The firm’s cost of capital is the average rate of return that a company must earn on its investments in order to satisfy its investors. It is a weighted average of the costs of debt, equity, and preferred stock.
Debt is a source of capital that a company borrows from lenders. The cost of debt is the interest rate that the company pays on its loans.
Equity is a source of capital that a company raises by selling shares of stock to investors. The cost of equity is the rate of return that investors expect to earn on their investment in the company’s stock.
Preferred stock is a type of equity that has a fixed dividend rate. The cost of preferred stock is the dividend rate that the company pays on its preferred stock.
The firm’s cost of capital is used to calculate the company’s weighted average cost of capital (WACC), which is a measure of the company’s overall cost of capital. The WACC is used to make investment decisions, such as whether to invest in a new project or to expand an existing one.
Option B is incorrect because it only includes borrowings. Option C is incorrect because it only includes share capital. Option D is incorrect because it only includes share bonds and debentures.