FUND.OF CORP.FINANCE PKG. F/BU >C<
FUND.OF CORP.FINANCE PKG. F/BU >C<
16th Edition
ISBN: 9781323165997
Author: Berk
Publisher: PEARSON C
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Chapter 13, Problem 3CC
Summary Introduction

Cost of debt:

Cost of debt refers to the interest a firm pays on its borrowings. It can be expressed as percentage rate. It can also be referred to as the effective rate a firm pays on its current debt.

Cost of capital:

Cost of capital can be defined as the opportunity cost used to make a specific investment. It refers to the rate of return that may be earned by investing the same amount in a different investment involving equal amount of risk. Thus, it is the rate of return needed to convince an investor to make an investment.

To determine:

How the cost of debt of a firm is measured.

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