A. The required rate of return may be equal to the firm's cost of capital, if the firm has not seen fit to adjust its cost of capital to reflect higher or lower risk.
B. The required rate of return may be called the "hurdle rate" because it is the minimum rate of return that is acceptable for an investment. A firm should invest money in a project only if the project provides a higher rate of return than this rate. Investments with a return higher than the hurdle rate will increase the value of the firm and thus stockholders' wealth.
C. The required rate of return is the discount rate used in a capital budgeting analysis.
D. The required rate of return, which is the rate used to discount future cash flows in a capital budgeting analysis, is not the risk-free rate. There is risk inherent in all capital budgeting projects, and the required rate of return incorporates a risk premium.
