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The required rate of return reflects the costs of funds needed to finance a project. True False

Question:

The required rate of return reflects the costs of funds needed to finance a project.

True

False

Required Rate of Return:

The required rate of return is used to evaluate the favorability of a given project by means of deploying various capital budgeting techniques such as net present value method, internal rate of return method, discounted payback period method, profitability index method etc.

Answer and Explanation:

The correct answer to the given question is True.

The required rate of return for a given project represents the overall or average rate of return required by all the investors of the firm which in turn can be calculated by taking a weighted average cost of all the sources of capital such as debt, common equity and preferred equity. The weighted average cost of capital takes into account the proportion and cost of various components of financing.


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Required Rate of Return (RRR): Formula & Calculation

from Financial Accounting: Help and Review

Chapter 1 / Lesson 29
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