What are reasonable cost of capitol for evaluating average risks projects, high risks projects, and low risk projects?
cost of capital= real cost of money + expected return + probability of failure
where probability of failure is the risk, expressed as a probability that the money will not be repaid. If the probaility of failure is 1 in twelve (eight and half percent), the real cost of money 4.5 percent, and one wants a 2 percent return, then
cost of capital= 4.5 + 2.0 + 8.5, so
cost of capital= 14.5 percent
capital = http://www.answers.com/topic/capital-1?cat=biz-fin (read definition #2)
capitol = http://www.answers.com/capitol (a building...)
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