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#cfa-level-1 #corporate-finance #reading-35-capital-budgeting #study-session-10
The required rate of return is the discount rate that investors should require given the riskiness of the project.
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3. BASIC PRINCIPLES OF CAPITAL BUDGETING
the changes in the market value of the company, not changes in its book value (accounting depreciation). In assumption 5 above, we referred to the rate used in discounting the cash flows as the “required rate of return.” <span>The required rate of return is the discount rate that investors should require given the riskiness of the project. This discount rate is frequently called the “opportunity cost of funds” or the “cost of capital.” If the company can invest elsewhere and earn a return of r, or if the company can repay


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