it can be seen that the company is considering a investment decision in respect to research and development of new drug and it will be trying to incorporate the the factors in association with estimation of the required rate of return as follows-

A. Time - Time will play an important role in estimating the required rate of return because when there will be higher time involved in receiving the future cash flows then it will be compensated with the higher required rate of return to deal with the risk because it will be leading to loss of the value of the receipt due to time value of money concept.

B. Cost of opportunity- Cost of opportunity is always to be accounted into calculation of required rate of return because the cost of opportunity will mean that the additional cost would have been incurred due to opportunity lost and it will be added into the required rate of return and required rate of return will be higher due to compensation for these opportunity loss.

C. Inflation - inflation is also to be discounted while calculation of the cost of opportunity because when there will be a higher inflation, then it will be directly leading into a higher required rate of return because it will be compensating for loss of value of the future flows.

For example, higher inflation is always negative and it will be leading to lower cash flows at present

D. Risk- Risk will also play an important role in decision making because when there will be higher risk associated with overall project, then it will be leading into increased required rate of return because the investor will want to compensate themselves for the risk and lower risk will be leading to lower required rate of return.

For example, when there is a higher risk of recession and adverse economic condition then we will be trying to estimate higher required rate of return.