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

7. Receivables and Investments

Introduction to Investments in Securities

Financial Accounting

7. Receivables and Investments

Introduction to Investments in Securities

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

Which of the following best describes a firm's overall cost of capital in relation to its investments in securities?

It includes both the cost of debt and the cost of equity capital.

It only includes the cost of equity capital.

It only includes the cost of debt.

It excludes both the cost of debt and the cost of equity capital.

Previous problemNext problem

Verified step by step guidance

Understand the concept of 'cost of capital': The cost of capital represents the firm's required return on its investments, which is used to evaluate the profitability of potential projects. It includes both the cost of debt and the cost of equity capital.

Break down the components: The cost of debt is the effective rate a company pays on its borrowed funds, while the cost of equity is the return required by shareholders for investing in the company.

Recognize the importance of both components: A firm's overall cost of capital is a weighted average of the cost of debt and the cost of equity, known as the Weighted Average Cost of Capital (WACC). This reflects the firm's financing structure.

Eliminate incorrect options: The cost of capital cannot only include the cost of equity or only the cost of debt, as both are integral to the firm's financing. It also cannot exclude both components, as they are essential to calculating the firm's overall cost of capital.

Conclude that the correct description is: 'It includes both the cost of debt and the cost of equity capital,' as this aligns with the definition of a firm's overall cost of capital.