The return that must be earned on a project in order to leave the firm's value unchanged is ________.

Question

Quizplus · Accepted Answer

The return required to leave the firm's value unchanged is equivalent to the cost of capital. This is because the cost of capital represents the minimum return that investors require in order to invest in the project, and if the project only earns the cost of capital, the firm's value will not increase. The internal rate of return (A) is the return at which the project's net present value is zero, which represents an increase in firm value. The interest rate (B) is the cost of borrowing, and is not necessarily the same as the cost of capital. The compound rate (D) is not a commonly used financial term.

The Return That Must Be Earned on a Project in Order