Detailed Answer
(d) Answer (d) is correct because a weighted-average of
the costs of all financing sources should be used, with the weights
determined by the usual financing proportions. Answer (a) is
incorrect because the cost of funds for a particular project does
not represent the cost of capital for the firm. The cost of capital
should also be calculated on an after-tax basis. Answer (b) is
incorrect because the cost of capital is a composite, or weightedaverage,
of all financing sources in their usual proportions. Answer
(c) is incorrect because the cost of capital is a composite, or
weighted-average, of all financing sources in their usual proportions.
It includes both the after-tax cost of debt and the cost of
equity financing.