Ted is trying to decide what cost of capital he should assign to a project. Which one of the following should be his primary consideration in this decision? Amount of debt used to finance the projectUse, or lack thereof, of preferred stock to finance the projectMix of funds used to finance the projectRisk level of the projectLength of the project's life

Question

Gianni Lara

Business

10 December, 08:10

Ted is trying to decide what cost of capital he should assign to a project. Which one of the following should be his primary consideration in this decision? Amount of debt used to finance the projectUse, or lack thereof, of preferred stock to finance the projectMix of funds used to finance the projectRisk level of the projectLength of the project's life

+4

Answers (1)

Know the Answer?

Kara Garrett · Answer 1

Answer: The correct answer is the risk level of the project.

Explanation: When a company is deciding on the cost of capital of a new project they need to determine where the risk level is in comparison to their normal operations. The company will know what their WACC (weighted average cost of capital) is. If the new project is similar in risk to the other operations the company will know that it will be accurate to use the existing WACC of the business.