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The Net Present Value Is an Interest Rate Chosen to Reflect

question 133

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The net present value is an interest rate chosen to reflect not only the time value of money, but the desired returns the company expects for the level of risk being taken.


Definitions:

Marginal Cost

The rise in expense associated with the production of an extra unit of a product or service.

Average Variable Cost

The total variable cost divided by the quantity of output produced; it measures the variable cost per unit of output.

Average Total Cost

The per unit cost of production, calculated by dividing the total costs by the quantity of output produced.

Profit-maximizing

A strategy or point at which a business makes the greatest financial gain, where marginal revenue equals marginal cost.

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