COST OF CAPITAL
PRACTICE EXAM 2026-
VERSION WITH
QUESTIONS AND
ANSWERS 100%
CORRECT WITH
RATIONALES AND PDF
AVAILABLE FOR
DOWNLOAD.
,1. What is the cost of capital?
A. Accounting profit
B. Minimum required return on
investment
C. Total revenue
D. Net income
Answer: B
Rationale: It represents the minimum
return required by investors to finance a
project or firm.
2. Which component is NOT part of cost
of capital?
A. Debt
B. Equity
,C. Inventory
D. Preferred stock
Answer: C
Rationale: Inventory is an asset, not a
financing source.
3. The cost of debt is best defined as:
A. Dividend rate
B. Interest rate adjusted for tax
C. Earnings per share
D. Market price of shares
Answer: B
Rationale: Debt cost is interest adjusted
for tax savings.
, 4. Why is debt cheaper than equity?
A. No repayment required
B. Tax deductibility of interest
C. No risk involved
D. Higher returns
Answer: B
Rationale: Interest payments reduce
taxable income.
5. The formula for after-tax cost of debt
is:
A. r(1 + t)
B. r(1 − t)
C. r / (1 − t)
D. r × t
PRACTICE EXAM 2026-
VERSION WITH
QUESTIONS AND
ANSWERS 100%
CORRECT WITH
RATIONALES AND PDF
AVAILABLE FOR
DOWNLOAD.
,1. What is the cost of capital?
A. Accounting profit
B. Minimum required return on
investment
C. Total revenue
D. Net income
Answer: B
Rationale: It represents the minimum
return required by investors to finance a
project or firm.
2. Which component is NOT part of cost
of capital?
A. Debt
B. Equity
,C. Inventory
D. Preferred stock
Answer: C
Rationale: Inventory is an asset, not a
financing source.
3. The cost of debt is best defined as:
A. Dividend rate
B. Interest rate adjusted for tax
C. Earnings per share
D. Market price of shares
Answer: B
Rationale: Debt cost is interest adjusted
for tax savings.
, 4. Why is debt cheaper than equity?
A. No repayment required
B. Tax deductibility of interest
C. No risk involved
D. Higher returns
Answer: B
Rationale: Interest payments reduce
taxable income.
5. The formula for after-tax cost of debt
is:
A. r(1 + t)
B. r(1 − t)
C. r / (1 − t)
D. r × t
