When we compute the cost of equity capital for a project we assume that the ________ of the project is equivalent to the average risk of the firm's investments.
A)diversifiable risk
B)market risk
C)non-systematic risk
D)volatility
E)standard deviation

Question

Quizplus · Accepted Answer

The cost of equity capital for a project is calculated using the capital asset pricing model (CAPM), which assumes that the risk associated with the project is equivalent to the market risk (systematic risk) of the firm's investments. Diversifiable risk (also known as non-systematic risk) can be eliminated through diversification, while volatility and standard deviation are measures of risk and not concepts used in CAPM.

When We Compute the Cost of Equity Capital for a Project