The Appropriate Discount Rate to Be Used When Analyzing an Investment

question 157

Multiple Choice

The appropriate discount rate to be used when analyzing an investment project is _______________.

• A) The rate of return that will result in the highest NPV.
• B) The internal rate of return on that investment.
• C) Equal to the cost of capital based on the firm's historical assets.
• D) The rate of return financial markets offer on investments of similar risk.
• E) The rate of interest the firm would pay if it sold bonds.

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Definitions:

Divesting

The process of selling off subsidiary business interests or investments, typically to refocus core activities or raise capital.

Compensating

Providing something, typically money, to make up for a loss, damage, or inconvenience caused.

Acquiring

The process of obtaining ownership or control of something, often referenced in the context of corporate takeovers or purchasing assets.