Suppose a firm estimates its cost of capital for the coming year to be 10%?

Question

What are reasonable costs of capital for evaluating average-risk projects, high-risk projects, and low-risk projects?

Answer 1

There are several methods to determine the cost of capital. the most popular is Capital Asset Pricing Method (CAPM) I guess. It changes for each country and each industry. In our project valuations we use around 20%-30% for projects in emerging countries, 15%-20% for average risk projects and below 15% for low risk projects. Note that the cost of capital shouldn't be lower than the risk-free rate of the relevant country. A good indicator of risk-free rate is the yield of a government bond.