The cost of capital

Question 1

Overall Approach

Answer 1

A firm will evaluate a project’s return using the company’s cost of capital/discount rate/cost of capital

Question 2

Total return demanded by an investor is dependent upon:

Answer 2

The reward demanded for the risk taken
The prevailing risk-free rate (Rf) of return

Question 3

Market value of investment is equal to:

Answer 3

Present value of the expected returns discounted at investors’ required rate of return

Question 4

Investor’s required rate of return:

Answer 4

IRR achieved by investing the current price and receiving the future expected returns