Differentiate required rate of return and cost of capital


Problem 1: Why is NPV considered a superior method of evaluating the cash flows from a project? For a project the net present value is $15. What does this number explain?

Problem 2: Differentiate between 'required rate of return' and 'cost of capital'?

Problem 3: When we say the 'cost of equity capital' or cost of equity of a firm is 15%, what does it mean? In other words, interpret the meaning of '15% cost of equity'.

The rate of return that investors require on their investment in the firm is 15%.

Problem 4: What are some of the disadvantages of using the IRR method?

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Finance Basics: Differentiate required rate of return and cost of capital
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