Given the Following Information, Calculate the Appropriate After-Tax Discount Rate

question 27

Multiple Choice

Given the following information, calculate the appropriate after-tax discount rate. Tax rate on comparable risk investment: 35%, Investor's before-tax opportunity cost: 12%, Capitalization rate: 8%.

• A) 2.8%
• B) 4.2%
• C) 5.2%
• D) 7.8%

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Definitions:

Flexible Budget

An adaptable budget configured to change with differing levels of activity or volume.

Return on Investment

A performance measure used to evaluate the efficiency or profitability of an investment or compare the efficiency of several different investments.

Variable Costs

Variable costs are expenses that change in proportion to the activity of a business, such as sales volumes.

Controllable Fixed Costs

Expenses that do not change with production level but can be altered or managed by decisions at the management level.