The discount rate (RRR) is frequently called the “opportunity cost of funds” or the “cost of capital.
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3. BASIC PRINCIPLES OF CAPITAL BUDGETING #13;
In assumption 5 above, we referred to the rate used in discounting the cash flows as the “required rate of return.” The required rate of return is the discount rate that investors should require given the riskiness of the project. <span>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 its sources of capital and save a cost of r, then r is the company’s opportunity cost of funds.
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