Asked by
Adriana Ramirez
on Dec 01, 2024
Verified
The appropriate interest rate to use in capital budgeting is:
A) always the company's cost of capital.
B) is the company's cost of capital if the project's risk is about the same as the company's.
C) the cost of capital plus any additional risk premium required to compensate for the project's higher risk.
D) b and c.
Capital Budgeting
The process of evaluating and selecting long-term investments that are in line with the goal of shareholder wealth maximization.
Cost of Capital
The rate of return that a business must earn on its investment projects to increase or maintain its value, encompassing the cost of debt and equity.
- Acquire knowledge about the principle of adjusting discount rates for risk and its implementation in financial planning for capital investments.
- Find the suitable discount rate for a range of projects, considering the nature of their risks.
Verified Answer
7S
Learning Objectives
- Acquire knowledge about the principle of adjusting discount rates for risk and its implementation in financial planning for capital investments.
- Find the suitable discount rate for a range of projects, considering the nature of their risks.