The corporation assumes that the markets are efficient and financial markets tend to be perfectly efficient where prices represent all the information available on an asset. This has a basic implication that an investor cannot be able to earn returns without taking any additional risk that is considered. Market efficiency helps corporations to develop financial strategies based on market conditions, stock issue timing, and whether or not they should buy stock based on current market.
Cost of Capital
Capital cost is the return expected by the investor for his investment. It forms an importa