RAH Inc., a U.S. corporation is evaluating a proposal to construct and lease an office building in Kiev. RAH's weighted average cost of capital is 11%. The risk free rate in the U.S. is 3.75%. RAH believes that conditions in Kiev warrant a required rate of return that is 12% above the risk-free rate. Cash flows from the hotel project should be discounted at

Question

Quizplus · Accepted Answer

RAH believes that conditions in Kiev warrant a required rate of return that is 12% above the risk-free rate, which is 3.75% in the US. Therefore, the required rate of return for this project is 3.75% + 12% = 15.75%. This should be the discount rate used to calculate the cash flows from the hotel project. Hence, the correct answer is option C.

RAH Inc, a U