Ted is trying to decide what cost of capital he should assign to a project. Which one of the following should be his primary consideration in this decision?

Question

Quizplus · Accepted Answer

The risk level of the project should be the primary consideration when determining the cost of capital. Higher-risk projects will require a higher cost of capital to compensate investors for the increased risk. The amount of debt, use of preferred stock, mix of funds, and length of the project's life can all impact the cost of capital to some extent, but they are secondary considerations to the risk level of the project.

Ted Is Trying to Decide What Cost of Capital He