The Selection of an Appropriate Discount Rate for a Particular

question 21

Multiple Choice

The selection of an appropriate discount rate for a particular project is primarily dependent upon the project's

• A)time to closure.
• B)initial cost.
• C)level of risk.
• D)starting date.
• E)expected dollar return.

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Definitions:

Discount Rate

The interest rate used in discounted cash flow analysis to calculate the present value of future cash flows.

Net Present Value

The variance between cash inflows' and outflows' current values during a certain period.

Discount Factor(s)

A numerical factor used to calculate the present value of future cash flows, reflecting the time value of money.

Straight-Line Depreciation

A method of allocating the cost of a tangible asset over its useful life in equal installments, reflecting the asset’s gradual decrease in value.