Question

The rate of return available on the next best investment alternative for the saver refers to the discount cost of funds. True False

Answer 1

True because cost of funds to company are the required return of the investors so saying that the rate of return used for investment appraisal is discount rate(discount cost of funds) derived from the Dividend valuation Model, Gordon Growth Model, Capital Asset pricing model or credit spread. These are the ways to compute the required return of investors.