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A Project Categorized by Its Risk Class

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Why would a project be categorized by its risk class? What effect does this categorization have on the cost of capital? Provide an example to explain your answer.

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The solution discusses why would a project be categorized by its risk class.

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A project is categorized by its risk class to help in the economic evaluation of the investment proposal. The analysis stipulates whether the investment project will be accepted or rejected. The risk class is related to the equilibrium rate of the interest, meaning borrowing is only worthwhile if the return ...

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