The Discount Rate Assigned to an Individual Project Should Be

question 238

Multiple Choice

The discount rate assigned to an individual project should be based on:

• A) The firm's weighted average cost of capital.
• B) The actual sources of funding used for the project.
• C) An average of the firm's overall cost of capital for the past five years.
• D) The current risk level of the overall firm.
• E) The risk level of the project itself.

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Definitions:

External Benefits

Benefits from a transaction or activity that accrue to others not directly involved in the transaction or activity.

External Costs

Costs generated by production or consumption activities that are not borne by the producer or consumer but by a third party or society at large.

Socially Desirable

Refers to actions or policies that are widely accepted and promoted by society because they are considered beneficial for the majority of its members.

Efficient

An attribute of systems, processes, or devices that use the least amount of inputs to achieve the highest amount of output or desired effect.