Risk and Cost of Capital

Related BrainMass Solutions

• Determining the optimal capital budget

  What is the firm's optimal capital budget? IRRs of projects A, B, and C are above cost of capital i.e. 14%, these should be selected.

• Firm uses its company cost of capital to evaluate all projec

  Each project should be evaluated using the project's own opportunity cost of capital. Most projects can be treated and an average risk entity and using the cost of capital provides a useful starting point on average risk projects.

• Discuss the pros and cons of using this measure

  Cost of capital can also be used to illustrate the relationship between risk and return.

• Explain the Companies Cost of Capital and How it is Calculated

  How do market rates and the company's perceived market risk impact its cost of capital? Answer 1: The cost of capital for a firm is a weighted sum of the cost of equity and the cost of debt.

• Cost of capital for projects with different risks

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• Cost of capital

  Adjust that cost for differences in capital structure and than use this cost of capital for high/low risk projects.

• Risk free debt, and risk of firms equity

  Equity cost of capital is even raised the most if the company get involved in risk-free debt. This is the case because risk free debt does not share any risk. In short, the higher the risk of debt, the lower the cost and vice versa.

• American Recovery and Reinvestment Act of 2009

  530948 American Recovery and Reinvestment Act of 2009 I need help identifying a clearer definition of risk and cost of capital for levered equity and risk and return of unlevered equity.

• Reflective Percentage of the Company's Current Cost of Capital

  How do market rates and the company's perceived market risk influence its cost of capital, and how does the company's debt-to-equity mix impact this cost of capital? What is market risk, and how is it measured?

• Risk in Capital projects: What analyses would you request?

  The cost of capital may sometimes be adjusted downwards if the project entails less than normal risk. A company can also use sensitivity analysis and simulation techniques to measure and adjust the risk involved in a capital project.