Which one of the following should be the primary consideration when determining the appropriate cost of capital for a speciﬁc project?

Question

Quizplus · Accepted Answer

The risk level of the project should be the primary consideration when determining the appropriate cost of capital. This is because the cost of capital reflects the required return to compensate investors for the risk they are taking. A higher-risk project will require a higher cost of capital to compensate investors for the increased risk. The initial capital requirement, payback period, expected net present value, and the firm's current cost of capital are all relevant factors, but the risk level should be the primary consideration.

Which One of the Following Should Be the Primary Consideration