Capital budgeting proposals should be evaluated as if the project were financed:
A) entirely by debt.
B) entirely by equity.
C) half by debt and half by equity.
D) with the highest cost source of funds, to be safe.

Question

Quizplus · Accepted Answer

Capital budgeting proposals should be evaluated as if the project were financed entirely by equity to ensure that the project's viability is assessed based on its own merits, independent of the financing mix. This approach uses the firm's weighted average cost of capital (WACC) as the discount rate, reflecting the opportunity cost of capital.

Capital Budgeting Proposals Should Be Evaluated as If the Project