risky project choice

I think about this. This question does not make sense. The cost of capital is the rate of return the suppilers of capital require as compensation for their contribution of captial. I think it simply does not make sense to evaulate this project using cost of capital if you do not want to consider inflows. There have be inflows althought indirectly. For example, if company does not have pollution control, goverment will force it out of business. So this pollution control does contribute to the revenue indirectly.



Edited 1 time(s). Last edit at Saturday, July 28, 2007 at 01:22AM by disptra.
 
IMO ,the question is not denying that there are indirect inflows from the pollution control project. In fact it goes on to say that irrespective of the project chosen, these indirect(revenue from the business ) inflows are going to be the same.
 
Then why inflow is not discounted by the same rate(TVM). If inflows are larger than outflows which it should be, with lower rate, the NPV for risky project will be higher.



Edited 1 time(s). Last edit at Saturday, July 28, 2007 at 03:11AM by disptra.
 
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