Answer: Company 1

## Explanation **Company 1** is most likely to have the lowest cost of capital because: ### Key Analysis Points: 1. **Liquid Assets Analysis**: - **Company 1**: 30% liquid assets (10% cash + 20% marketable securities) - **Company 2**: 19% liquid assets (12% cash + 7% marketable securities) - **Company 3**: 21% liquid assets (16% cash + 5% marketable securities) 2. **Intangible Assets Analysis**: - **Company 1**: 17% intangible assets and goodwill (lowest) - **Company 2**: 21% intangible assets and goodwill - **Company 3**: 27% intangible assets and goodwill (highest) ### Why Company 1 Has Lower Cost of Capital: - **Higher Liquidity**: Company 1 has the highest proportion of liquid assets (30%), providing better financial flexibility and lower default risk - **Lower Intangible Assets**: Company 1 has the lowest proportion of intangible assets and goodwill (17%), indicating more tangible collateral that can be used to secure financing - **Better Asset Quality**: Higher liquid assets and lower intangible assets suggest stronger asset quality, which reduces perceived risk for lenders and investors ### Cost of Capital Implications: - Companies with higher liquidity and more tangible assets typically have: - Lower default risk - Better collateral for debt financing - More predictable asset values - Lower risk premiums demanded by capital providers Therefore, Company 1's balance sheet composition suggests it would face the lowest cost of capital among the three comparable companies.

Author: LeetQuiz Editorial Team