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Cost of capital

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Suppose a firm estimates its cost of capital for the coming year to be 10 percent. What are reasonable costs of capital for evaluating average-risk projects, high-risk projects, and low-risk
projects?

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Solution Summary

The solution explains how to estimate the cost of capital for average-risk projects, high-risk projects, and low-risk projects.

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Usually firms add / subtract 2% to the average cost. A high risk project will have a cost of 12% and a low risk project will have a cost of 8%.

These figures ...

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