What Discount Rate Is Used When Calculating Net Present Value

question 24

Multiple Choice

What discount rate is used when calculating net present value?

• A) The bank rate
• B) The opportunity cost of capital
• C) The internal rate of return
• D) The discounted cash flow rate

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Definitions:

Interest Revenue

Income earned from investments, loans, or other interest-bearing assets.

Estimated Bad Debts

Anticipated amounts that customers will not pay the company, typically recorded as an expense.

Realizable Value

The estimated amount that could be received from the sale of an asset in a normal transaction between willing parties.

Cash Discount

A reduction in invoice price given by a seller to a buyer in return for early payment, aimed at accelerating cash inflows.