Table of contents

1. Introduction to Accounting1h 21m
2. Transaction Analysis1h 13m
3. Accrual Accounting Concepts2h 38m
4. Merchandising Operations2h 30m
5. Inventory1h 55m
6. Internal Controls and Reporting Cash1h 16m
7. Receivables and Investments3h 8m
8. Long Lived Assets5h 1m
9. Current Liabilities2h 19m
10. Time Value of Money1h 23m
- Time Value of Money Equations
  35m
- Using Time Value of Money Tables
  47m
11. Long Term Liabilities2h 45m
12. Stockholders' Equity2h 15m
13. Statement of Cash Flows2h 24m
14. Financial Statement Analysis5h 25m
15. GAAP vs IFRS56m

13. Statement of Cash Flows

Introduction to the Statement of Cash Flows

Financial Accounting

13. Statement of Cash Flows

Introduction to the Statement of Cash Flows

Previous problemNext problem

Struggling with Financial Accounting?

Join thousands of students who trust us to help them ace their exams!Watch the first video

Multiple Choice

A company's cost of capital refers to the:

amount of capital invested in property, plant, and equipment

average rate of return it must pay to finance its assets through debt and equity

total amount of cash outflows reported on the statement of cash flows

interest paid on short-term loans only

Previous problemNext problem

Verified step by step guidance

Understand the concept of 'cost of capital': It represents the average rate of return a company must pay to finance its assets, typically through a mix of debt and equity. This is a critical metric for evaluating investment decisions and ensuring the company generates returns that exceed this cost.

Analyze the options provided in the problem: The first option refers to the amount of capital invested in property, plant, and equipment, which is unrelated to the cost of capital. The second option correctly identifies the cost of capital as the average rate of return required to finance assets. The third option refers to cash outflows, which are part of cash flow analysis, not cost of capital. The fourth option focuses on interest paid on short-term loans, which is only a subset of financing costs and does not encompass the broader concept of cost of capital.

Recognize that the cost of capital includes both debt and equity financing: Debt financing involves interest payments, while equity financing involves returns expected by shareholders. The weighted average cost of capital (WACC) is often used to calculate this metric, combining the costs of both types of financing.

Consider the implications of cost of capital: Companies use this rate to evaluate whether potential investments or projects will generate returns that exceed the cost of financing them. If the expected return is lower than the cost of capital, the investment may not be worthwhile.

Conclude that the correct answer is the second option: The average rate of return it must pay to finance its assets through debt and equity. This aligns with the definition and purpose of cost of capital in financial accounting.