Under the net present value (NPV) method, the rate of return required to satisfy the firm's investors is the
A) opportunity cost.
B) internal rate of return.
C) cost of capital.
D) accounting return on investment.

Question

Quizplus · Accepted Answer

The cost of capital represents the rate of return that investors expect to earn on their investment in the firm. It takes into account the opportunity cost of investing in the firm, as well as the cost of obtaining funds from different sources (such as debt and equity). The NPV method compares the present value of cash inflows with the present value of cash outflows, discounted at the cost of capital, in order to determine whether a project is worth pursuing. Therefore, the rate of return required to satisfy the firm's investors is the cost of capital.

Under the Net Present Value (NPV) Method, the Rate of Return