[amp_mcq option1=”Cost of equity” option2=”Cost of debt” option3=”Cost of bank loan” option4=”Cost of term loans” correct=”option1″]
The correct answer is A. Cost of equity.
Cost of equity is the rate of return that a company must earn on its equity capital in order to satisfy its investors. It is the minimum return that a company must earn on its equity capital in order to attract and retain investors.
Cost of debt is the rate of interest that a company pays on its debt. It is the cost of borrowing money from lenders.
Cost of bank loan is the interest rate that a company pays on a loan from a bank. It is the cost of borrowing money from a bank.
Cost of term loans is the interest rate that a company pays on a loan that is repaid over a fixed period of time. It is the cost of borrowing money from a lender.
In general, cost of equity is higher than cost of debt because equity is riskier than debt. Equity holders have a residual claim on the company’s assets, which means that they are the last to be paid if the company goes bankrupt. Debt holders, on the other hand, have a prior claim on the company’s assets, which means that they are paid before equity holders if the company goes bankrupt.
Therefore, companies must offer a higher return to equity holders in order to attract and retain them.