If a Typical U

question 79

Multiple Choice

If a typical U.S. company uses the same discount rate to evaluate all projects, the firm will most likely become

• A) Riskier over time, and its value will decline.
• B) Riskier over time, and its value will rise.
• C) Less risky over time, and its value will rise.
• D) Less risky over time, and its value will decline.
• E) There is no reason to expect its risk position or value to change over time as a result of its use of a single discount rate.

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Definitions:

Market Rate

The current price or cost of a good or service in the marketplace, often used in reference to interest rates or wages.

Contract Rate

The agreed-upon price or rate specified in a contract for services or goods, often locked in for the duration of the agreement.

Issue Price

The price at which securities, such as bonds or shares, are originally sold to the public or investors by the issuing entity.

Installment Note Payable

A debt instrument that requires a series of periodic payments to the lender over a specified period of time.