Explanation

Correct Answer: A (Company 1)

Analysis:

1. Intangible Assets and Goodwill Analysis:

   • Company 1: 17%
   • Company 2: 21%
   • Company 3: 27%

2. Relationship to Cost of Capital:

   • Companies with higher proportions of intangible assets and goodwill typically have:
     • Higher business risk
     • Lower asset tangibility (less collateral value)
     • Higher perceived risk by lenders and investors
     • Consequently, higher cost of capital

3. Liquidity Analysis:

   • Company 1 has the highest proportion of marketable securities (20%), which are highly liquid assets
   • Higher liquidity generally reduces financial risk and cost of capital

4. Conclusion:

   • Company 1 has the lowest proportion of intangible assets (17%) and highest proportion of liquid assets
   • This suggests lower business risk and better asset quality
   • Therefore, Company 1 is most likely to have the lowest cost of capital

Key Concept: Companies with more tangible assets and higher liquidity typically have lower perceived risk and consequently lower cost of capital.