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1. 1. The Cost of Capital: Introduction The Cost of Capital: Introduction Companies issue bonds, preferred stock, and common equity to aise capital to invest in capital budgeting projects. Capital isnecessary factor of production and like any other factor, it has a cost. This cost is equal to the Select the applicable security. The rates of return that investors require on bonds, preferred stocks, and common equity represent the costs of those securities to the firm. Companies estimate the required returns on their securities, calculate a weighted average of the costs of their different types of capital, and use this average cost for capital budgeting purposes. required return on rate: When calculating om operations when The firm's primary financial objective is to Select shareholder value. To do this, companies invest in projects that earnSelect their cost of capital. So, the cost of capital is often referred to as the -Select -Select and accruals, which a se spontaneously we hted average cost of capital WA C our concern is with capital that must be provided by Select- interest-bearing debt preferred stock and common equity. capital budgeting projects are undertaken, are not included as part of total invested capital because they do not come directly from investors. Which of the following would be included in the caculation of total invested capital? Choose the response that is most correct a. Notes payable b. Taxes payable c Retained earnings d. Responses a and c would be included in the calculation of total invested capital. e. None of the above would be included in the cakulation of total invested capital. The correct response isSelect