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Financial Management

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What are reasonable cost of capitol for evaluating average risks projects, high risks projects, and low risk projects?

cost of capital= real cost of money + expected return + probability of failure

where probability of failure is the risk, expressed as a probability that the money will not be repaid. If the probaility of failure is 1 in twelve (eight and half percent), the real cost of money 4.5 percent, and one wants a 2 percent return, then

cost of capital= 4.5 + 2.0 + 8.5, so
cost of capital= 14.5 percent

capital = (read definition #2)

capitol = (a building...)


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