To Determine the Required Discount Rate to Use in Calculating

question 47

Multiple Choice

To determine the required discount rate to use in calculating a terminal value for project cash flows, you should apply the CAPM,

• A)and use the weighted average beta of the debt and the equity, based on book values.
• B)and use the beta of the firm's debt.
• C)and use the beta of the firm's equity.
• D)and use the weighted average beta of the debt and the equity, based on market values.

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Definitions:

Cost Formula

An equation or method used to predict the cost associated with a certain level of activity or production volume.

Contribution Margin

The difference between sales revenue and variable costs of a product or service, highlighting how much contribution towards fixed costs and profit is made per unit sold.

Variable Costs

Costs that vary directly with the level of production or sales volume, such as raw materials and sales commissions.

Gross Margin

Gross margin is a company's net sales revenue minus its cost of goods sold, representing the efficiency with which it can produce and sell its products for a profit.