A firm's cost of capital is the required rate of return on the firm's average project.

Question

Quizplus · Accepted Answer

The cost of capital is the minimum rate of return that a firm must earn on its investments in order to satisfy its investors' required rate of return. It represents the firm's average cost of funds, and is used to evaluate potential investment opportunities. Therefore, the firm's cost of capital is indeed the required rate of return on the firm's average project.

A Firm's Cost of Capital Is the Required Rate of Return