The expected cost of an investment

Question

Quizplus · Accepted Answer

The expected cost of an investment depends on the market interest rate. This is because the market interest rate represents the opportunity cost of investing in a particular project or asset. When a firm invests in a project, it is foregoing the opportunity to invest in another project or asset that would have generated a return based on the prevailing market interest rate. Therefore, the expected cost of an investment is the return that the firm must generate to compensate for the opportunity cost of not investing in an alternative project or asset.

The Expected Cost of an Investment