The Discount Rate Assigned to an Individual Project Should Be

question 41

Multiple Choice

The discount rate assigned to an individual project should be based on:

• A)the firm's weighted average cost of capital.
• B)the actual sources of funding used for the project.
• C)an average of the firm's overall cost of capital for the past five years.
• D)the current risk level of the overall firm.
• E)the risks associated with the use of the funds required by the project.

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Definitions:

Inflation

The level of acceleration in the universal pricing for goods and services, diminishing the power of the dollar.

Inflation Expectations

The rate at which individuals expect the general price level of goods and services to change over a period of time.

Short-run Phillips Curve

A representation in economics that shows an inverse relationship between the rate of unemployment and the rate of inflation in the short-term.

Unemployment

The condition wherein people who are able and willing to work and are actively looking for work cannot secure a job.