The Net-Present-Value Method Uses a Discount Rate Equal to The

question 10

Multiple Choice

The net-present-value method uses a discount rate equal to the:

• A)prime rate
• B)firm's cost of capital
• C)firm's return on assets
• D)rate of return demanded by stockholders

---

Definitions:

Bond Interest Expense

The cost a company incurs for borrowing money through issuing bonds, represented as interest payments to bondholders.

Annual Interest

The interest amount accumulated over one year on borrowed funds or investments.

Effective-Interest Method

A way of calculating the amortized cost of a bond and the amount of interest expense over its life, reflecting the constant rate of interest over the period.

Bond Discount Amortization

The process of gradually writing off the discount on a bond over the life of the bond, reflecting the increase in its value as it nears maturity.