Reading 28: Capital Budgeting LOS e～ Q1 procedure, discount, decrease, increase

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LOS e: Discuss the procedure for determining the discount rate to be used in valuing a capital project, and calculate a project’s required rate of return using the CAPM.

Q1. If central bank actions caused the risk-free rate to increase, what is the most likely change to cost of debt and equity capital?

A)   Both decrease.

B)   One increase and one decrease.

C)   Both increase.

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