Finance-hydra multinational | Business & Finance homework help
The cost of capital should depend on the specific characteristics of Hydra’s restaurant chain expansion plan, including the risk associated with it. A general rule of thumb is that higher-risk projects require a higher cost of capital (i.e. a greater return on investment) to compensate for the increased risks inherent in them, while lower-risk projects may require less return. For example, if Hydra’s expansion plan involves opening new locations in high-growth markets with low levels of competition, then they may be able to secure financing at relatively low costs; however, if their plan involves entering more established markets where competition is stiffer and there are fewer opportunities for growth, then Hydra might need to account for higher interest rates or other forms of compensation from investors in order to make their expansion project more attractive.