Chapter 12.7, Problem 1CC

Summary Introduction

To discuss: The errors of capital budgeting process that are more significant compared to discrepancies in the cost of capital evaluation.

Introduction:

Cost of capital refers to the return that the investors expect on a particular investment. In other words, it refers to the compensation demanded by the investors for using their capitals.

The planning process that is utilized to find the long term investments of the firm such as new plant, machinery, replacement of machinery, and research and development worth the funding from the firm’s capital is termed as capital budgeting.