In the cost of capital example, which factor would likely lead to a higher discount rate?

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Multiple Choice

In the cost of capital example, which factor would likely lead to a higher discount rate?

When evaluating cost of capital, higher discount rates reflect greater perceived risk. Poor management of conflict minerals signals governance and supply-chain risks that could lead to regulatory penalties, legal challenges, supply disruptions, and reputational damage. Investors would demand a higher return to compensate for these risks, raising the discount rate. In contrast, lower regulatory risk, an efficient supply chain, and reduced energy use all suggest lower risk, which would tend to lower the discount rate. Therefore, poor management of conflict minerals is the factor most likely to push the discount rate higher.

When evaluating cost of capital, higher discount rates reflect greater perceived risk. Poor management of conflict minerals signals governance and supply-chain risks that could lead to regulatory penalties, legal challenges, supply disruptions, and reputational damage. Investors would demand a higher return to compensate for these risks, raising the discount rate. In contrast, lower regulatory risk, an efficient supply chain, and reduced energy use all suggest lower risk, which would tend to lower the discount rate. Therefore, poor management of conflict minerals is the factor most likely to push the discount rate higher.

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