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Should firms reassess their cost of capital as they assess potential projects or acquisitions?

Should firms reassess their cost of capital as they assess potential projects or acquisitions?

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Expert Solution

Yes, it is always good to reassess the overall cost of capital when they are acquiring their potential projects or acquisitions because it will be changing the overall cost of capital of the company due to change in the capital structure so company should always be trying to realigning their overall cost of capital with the targeted cost of capital and they should always try to generate higher rate of return the cost of capital so there should always be a proper check on the cost of capital in order to determine the limits within which cost of capital is to be constrained by the company and hence those companies which are having a better structure related to the cost of capital are always having an advantage in the long run so company should be proactively estimating their cost of capital and they should be trying to readjust accordingly after time period intervals which will be leading to better efficiency in management of the capital structure.

jeff jeffy answered 1 year ago
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