Treynor Industries is investing in a new project. The minimum rate of return the firm requires on this project is referred to as the:
A) average arithmetic return.
B) expected return.
C) market rate of return.
D) internal rate of return.
E) cost of capital.

Question

Quizplus · Accepted Answer

The minimum rate of return required by a firm on a new project is called the cost of capital. This is the minimum rate of return that the firm must earn on the project to cover its cost of capital and generate value for its shareholders. Options A, B, C, and D are not the correct answers because they refer to different concepts than the minimum rate of return required by the firm on a new investment.

Treynor Industries Is Investing in a New Project