The minimum acceptable expected rate of return on a project of a specific risk is the:
A)Project cost of capital
B)Company cost of capital
C)Rsk-free rate of return
D)Project Beta times market risk premium

Question

Quizplus · Accepted Answer

The minimum acceptable expected rate of return on a project of a specific risk is the project cost of capital, which is the minimum return required by the investors to undertake the project. It should be equal to or higher than the cost of capital of the company, which reflects the overall risk of the company. The risk-free rate of return is used to calculate the cost of equity, while the project Beta times market risk premium is used to calculate the cost of equity in the capital asset pricing model. However, the project cost of capital considers the specific risk factors of the project, such as market conditions, competition, and other variables that affect the potential returns.

The Minimum Acceptable Expected Rate of Return on a Project