c. Suppose a firms cost of capital is 10%. Is it logical to assume that the firm
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c. Suppose a firm’s cost of capital is 10%. Is it logical to assume that the firm would take on all available independent projects (of average risk) with returns greater than 10%? Further, if all available projects with returns greater than 10% have been taken, would this mean that cash flows from past investments would have an opportunity cost of only 10%, because all the firm could do with these cash flows would be to replace money that has a cost of 10%? Finally, does this imply that the cost of capital is the correct rate to assume for the reinvestment of a project’s cash flows?
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Financial Management Theory And Practice
ISBN: 9781439078105
13th Edition
Authors: Eugene F. Brigham, Michael C. Ehrhardt
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