Assume an all-equity company is considering expanding its current operations by increasing the size of its warehouse.The discount rate used for this project should be the

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The discount rate used for any project should reflect the risk of the project, and the company's cost of equity capital is a good proxy for this risk. It takes into account the company's beta, which reflects the systematic risk of the company relative to the market. The market rate of return (A) is not specific to the company and does not take into account its risk. The discount rate used for a different project in a different line of business (C) may not be appropriate for this project. The lowest discount rate used over the past 2 years (D) may not reflect the risk of this project. Finally, the company's cost of debt (E) is not relevant for an all-equity company.

Assume an All-Equity Company Is Considering Expanding Its Current Operations