# Fin215

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You are to assume that a firm’s cost of capital is 10%. Using this information, what are reasonable costs of capital for evaluating average-risk projects, high-risk projects, and low-risk projects. Based on your knowledge about this subject, I should have an estimated cost of capital for each of these 3 projects.

• Fin215 -

You are wasting your time here, and ours. This question has been answered twice

• Fin215 -

• Fin215 -

This is a poorly written question.

It states that a firm's cost of capital is 10%. That is, it pays 10% for borrowing money.

Why, then, does the question asks for "reasonable costs of capital" depending upon the risk involved?

As a borrower, the firm may be willing to pay a higher cost for a low risk investment, such as a mortgage on a building in a thriving market. But, if gambling upon a risky project, the firm's directors may not be willing to borrow money unless at a low cost.

• Fin215 -

I refer you to: http://www.jiskha.com/display.cgi?id=1201901472

• Fin215 -

10%, 10% and 10% is my answer.

Regardless of the risk of a project, that is the actual market interest rate for that company, according your statement of the problem. It is the prospective reasonableness (risk/reward) of the PROJECT, not the "reasonable" interest rate (capital cost), that needs to be be evaluated.

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