Using a company's cost of capital to evaluate a project is

Question

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Using a company's cost of capital to evaluate a project is correct for projects that have average risk compared to the firm's other assets. This is because the cost of capital reflects the average rate of return that investors expect from the company's projects, based on the risk of those projects. Projects with higher risk would require a higher rate of return, while projects with lower risk would require a lower rate of return. Therefore, using the cost of capital as a benchmark for evaluating projects is more accurate for projects that have average risk, as they are more likely to earn returns that are in line with the company's overall cost of capital.

Using a Company's Cost of Capital to Evaluate a Project