The appropriate cost of capital for a project depends on __________________.

Question

Quizplus · Accepted Answer

The appropriate cost of capital for a project depends on the risk associated with the project. Higher risk projects will require a higher cost of capital to compensate investors for the increased risk. Factors such as the type of security issued or the type of assets used in the project may affect the overall capital structure of the firm, but they do not determine the specific cost of capital for an individual project. Similarly, the total risk of the firm's equity and the interest rate on the firm's long-term bonds may affect the overall cost of capital for the firm, but they are not specific to an individual project.

The Appropriate Cost of Capital for a Project Depends on __________________