It Is Incorrect to Use the fiRm's Discount Rate When

question 37

Multiple Choice

It is incorrect to use the firm's discount rate when valuing a new project because:

• A)you must adjust the discount rate for the project based on the firm's risk.
• B)you must adjust the discount rate for the project based on the project risk.
• C)you must exercise risk aversion and use the market rate.
• D)an average rate across prior projects is acceptable because estimates contain errors.
• E)one must have the actual data to determine any differences in the calculations.

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Definitions:

Symmetric

Having proportions that are well balanced or proportions that mirror each other on either side of a central axis.

Distribution Shape

The form or appearance of the graphical representation of a dataset, indicating how data is dispersed or spread.

Standard Deviation

A statistic that quantifies the dispersion or spread of a set of numerical data from its mean.

Symmetric

Characterized by or exhibiting symmetry; having identical shape, size, and position on both sides of a dividing line.