The average cost of capital is the appropriate rate to use when evaluating new investments, even though the new investments might be in a higher risk class.

Question

Quizplus · Accepted Answer

The average cost of capital is not appropriate to use for evaluating new investments with higher risk. It should be adjusted based on the risk profile of the investment. Higher risk investments should have a higher required rate of return to compensate investors for the additional risk.

The Average Cost of Capital Is the Appropriate Rate to Use