Question:
Q1 If a company has a cost of capital of 12%, their minimum rate of return (hurdle rate) is expected to be?
a. 11%
b. 11.9%
c. 12%
d. Greater than 12%
Answer:
Option C is correct
Minimum rate of return= 12%
Step-by-step explanation:
The cost of capital is the minimum rate of rate of return that investors are expected to receive for their investment for it to be acceptable.
It is the opportunity cost of capital which the investors which investors would have earned on alternative investment opportunities.
The minimum rate of return encompasses the following factors; inflation, risk involved in the investment, prevailing interest rate
The minimum rate of return should be equal to or greater that the cost. Therefore the minimum rate of return = 12%
Minimum rate of return= 12%