When We Compute the Cost of Equity Capital for a Project

question 21

Multiple Choice

When we compute the cost of equity capital for a project we assume that the ________ of the project is equivalent to the average risk of the firm's investments.

• A)diversifiable risk
• B)market risk
• C)non-systematic risk
• D)volatility
• E)standard deviation

---

Definitions:

Opportunity Costs

The cost of forgoing the next best alternative when making a decision or choosing between options.

Diminishing Marginal Utility

The principle that as a consumer consumes more of a good or service, the additional satisfaction gained from each additional unit decreases.

Command Systems

Economic systems where the government or a central authority makes all decisions about what goods and services are produced, how they are produced, and who gets them.

Pure Capitalism

An economic system characterized by private property rights and the market allocating resources with little government intervention.