Capital budgeting analyses typically assume a constant cost of capital, even though the analysts know it will change. One reason for this practice is that

Question

Quizplus · Accepted Answer

The changes in the cost of capital over time are often unpredictable, making it difficult to accurately forecast future costs. As a result, analysts may assume a constant cost of capital for simplicity and because it is challenging to estimate how it will change over the investment period.

Capital Budgeting Analyses Typically Assume a Constant Cost of Capital