If a company's cost of borrowing is 12% and its cost of capital is 7%, the salvage value of an asset should be discounted at 12%

Question

Quizplus · Accepted Answer

The salvage value of an asset should be discounted at the company's cost of borrowing, which is 12%. This is because the salvage value represents the amount that could be obtained from selling the asset at the end of its useful life, and the company will need to borrow funds to purchase a replacement asset. The cost of capital, which includes both the cost of borrowing and the cost of equity, is used to evaluate investment opportunities and is not directly related to the salvage value of an asset.

If a Company's Cost of Borrowing Is 12% and Its