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Which of the following is most appropriate hurdle or discount rate for evaluating investment projects: a. Cost of Equity Capital b. Cost of Preference Capital c. Weighted Average Cost of Capital d. Cost of Debt
Risk adjusted WACC.. option" C"
Option C - WACC
The Cost of Capital has two elements : debt and equity.
WACC
However, a discount rate is more specific to the investor. WACC is a scientific way to calculate the % rate which may or may not be equal to the expected discount or hurdle rate by the investor.
Option C.Since it is a sum of all the other options according to their respective contribution (weight) to the overall capital employed.
. Weighted Average Cost of Capital
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