Risk adjusted discounting rate – methods of computing cost, Finance Basics

Risk Adjusted Discounting Rate - Methods of Computing Cost of Capital

This method is used to establish the discounting rate to be used for a provided project. The cost of capital of the firm will be utilized as the discounting rate for a given project whether project risk is equal to business risk of the firm. If a project has a higher risk than the business risk of the firm, then a percentage risk premium is further added to the cost of capital to verifying the discounting rate that is discounting rate for a high risk project = cost of capital + percentage risk premium. Consequently a high risk project such will be evaluated at a higher discounting rate.

Posted Date: 1/30/2013 4:06:00 AM | Location : United States







Related Discussions:- Risk adjusted discounting rate – methods of computing cost, Assignment Help, Ask Question on Risk adjusted discounting rate – methods of computing cost, Get Answer, Expert's Help, Risk adjusted discounting rate – methods of computing cost Discussions

Write discussion on Risk adjusted discounting rate – methods of computing cost
Your posts are moderated
Related Questions
Disadvantage of Joint Stock Companies Difficult to reconstruct the capital Many formalities in forming the company Heavy initial capital outlay. Loss of secrec

Assume a levered firm has a current value of $650,000,000. The firm currently has $259,258,527.20 in debt. Without debt, firm value (i.e. VU) would be $580,000,000. Ignore the cost

Types of jobbers in Stock Market There are three kinds of jobbers as: a) Bulls A jobber buys shares while prices are down and hold them in anticipation such t

1. The Marlin Company operates 50 weeks a year, and its cost of goods sold last year was $1,500,000. The firm carries six items in inventory: three raw materials, two work-in-proce


Current cost of a bond: You know that the after-tax cost of debt capital for Bubbles Champagne is 7 percent. If the firm has only one issue of five-year maturity bonds outstanding,

A current radio advertisement states that the average American household has an average credit card debt of $25,000. Based on an APR (Annual Percentage Rate) of 18% (common for cre

Define the term - Right Issues If an existing company intends to raise extra funds, it can do so by borrowing or b issuing new shares. One of the most general methods for a

Please describe the effect of financial leverage on a cost of equity and firm's equity beta.

SCENARIO You have just moved out of home and have a part-time job that pays you $18 per hour after tax (you work 20 hours a week). You also have $5000 in a savings account. You