ABC Corp.a US corporation is evaluating a proposal to construct and lease an office building in Kiev.ABC's weighted average cost of capital is 11%.The risk free rate in the United States is 3.75%.ABC believes that conditions in Kiev warrant a required rate of return that is 12% above the risk-free rate.Cash flows from the hotel project should be discounted at [blank].

Question

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According to the information given, ABC Corp. believes that the required rate of return on the office building project in Kiev is 12% above the risk-free rate. Therefore, the required rate of return for ABC Corp. to undertake this project is:

Risk-free rate + 12% = 3.75% + 12% = 15.75%.

Since the cash flows from the project should be discounted at the required rate of return, the answer is C) 15.75%.

ABC Corpa US Corporation Is Evaluating a Proposal to Construct and and Lease