Proposed assets can be evaluated using the company cost of capital providing that the:

Question

Quizplus · Accepted Answer

The cost of capital is based on the risk of the assets, so the new assets must have the same risk as the existing assets. Choices A and B are incorrect because even if a firm does not pay taxes or is all equity financed, the cost of capital can still be used to evaluate proposed assets. Choice C is incorrect because the cost of debt is not the only factor in determining a company's cost of capital.

Proposed Assets Can Be Evaluated Using the Company Cost of Capital