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

Question

Quizplus · Accepted Answer

In order to use the company cost of capital to evaluate proposed assets, it is necessary to assume that the new assets have the same risk as the existing assets. This assumption ensures that the cost of capital represents the required return for the level of risk involved in the investment. If the new assets have a different risk profile, then the cost of capital would need to be adjusted accordingly. Therefore, option D is the best choice. The other options are incorrect because they are not necessary conditions for using the cost of capital to evaluate proposed assets.

Proposed Assets Can Be Evaluated Using the Company Cost of Capital