Sylvan Learning Systems and Childtime Learning Centers: Cost of Capital

Fast Learning Inc. was a private firm that developed software and learning materials largely for preschool-aged children. It is considering moving into two new ventures: opening an early childhood education center and purchasing an existing day-care center. Fast Learning has approached a strategy consulting firm for advice on these ventures. One of the team members evaluating the proposals must determine the appropriate costs of capital (or hurdle rates). He considers whether to base the calculations on the cost of new sources of financing or an average of the costs of existing sources, and whether required returns should reflect actual past costs or current market costs.