[amp_mcq option1=”Capital budgeting is related to asset replacement decisions” option2=”Cost of capital is equal to minimum required return” option3=”Existing investment in a project is not treated as sunk cost” option4=”Timing of cash flows is relevant” correct=”option2″]<\/p>\n
The correct answer is: B. Cost of capital is equal to minimum required return<\/strong>.<\/p>\n Capital budgeting is the process of planning and evaluating long-term investments. It involves identifying, analyzing, and selecting investment projects that will help a company achieve its goals. The cost of capital is the rate of return that a company must earn on its investments in order to satisfy its investors. The minimum required return is the rate of return that a company must earn on its investments in order to break even.<\/p>\n The cost of capital is not equal to the minimum required return because the cost of capital includes a risk premium. The risk premium is the additional return that investors demand for taking on risk. The minimum required return does not include a risk premium because it is the rate of return that a company must earn on its investments in order to break even.<\/p>\n Here is a brief explanation of each option:<\/p>\n [amp_mcq option1=”Capital budgeting is related to asset replacement decisions” option2=”Cost of capital is equal to minimum required return” option3=”Existing investment in a project is not treated as sunk cost” option4=”Timing of cash flows is relevant” correct=”option2″]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[945],"tags":[],"class_list":["post-56857","post","type-post","status-publish","format-standard","hentry","category-financial-management","no-featured-image-padding"],"yoast_head":"\n\n