A company is currently taking on two projects with an individual cost of capital of 10 percent and 12 percent for each of the projects. That means that the before-tax cost of capital for the company must be between 10 and 12 percent.

Question

Quizplus · Accepted Answer

Just because a company is taking on projects with a cost of capital of 10% and 12%, it doesn't mean that the before-tax cost of capital for the company must lie between 10% and 12%. The overall cost of capital for a company depends on various factors and can be influenced by factors like market conditions, credit rating, industry outlook, etc. Therefore, we cannot make a definitive statement about the before-tax cost of capital for the company based on the cost of capital for individual projects.

A Company Is Currently Taking on Two Projects with an Individual