If a Company Uses a 12% Discount Rate with the Net

question 57

Multiple Choice

If a company uses a 12% discount rate with the net present value method, and then does the same analysis, but with a 15% discount rate, which of the following is likely to occur?

• A)The 12% rate will show the project is more profitable than the 15% rate.
• B)The 15% rate will show the project is more profitable than the 12% rate.
• C)Both rates will produce the same net present value.
• D)The relative profitability of the two studies depends only on the timing of the cash flows, not on the discount rate.

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Definitions:

Placebo Effect

The beneficial effect on an individual resulting from a placebo treatment, which arises from the patient's expectations rather than the treatment itself.

Survey

A method of gathering information from a large group of people, typically by asking them questions.

Masked Design

An experiment in which participants do not know whether they are in the experimental or the control condition. Previously called a blind design.

Researcher's Expectations

The preconceived notions or hypotheses that a researcher may have before conducting an experiment or study.