If a Company Uses the Same Discount Rate for Evaluating

question 156

Multiple Choice

If a company uses the same discount rate for evaluating all projects,which of the following results is likely?

• A) Accepting poor,high-risk projects.
• B) Rejecting good,low-risk projects.
• C) Accepting only good,low risk projects.
• D) Accepting no projects.
• E) Answers a and b are both correct.

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Definitions:

Working Capital

The difference between a company's current assets and current liabilities, indicating the short-term financial health and operational efficiency of the business.

Cost of Trade Credit

The effective interest rate associated with taking discounts offered by suppliers for early payment or the cost of forgoing those discounts.

Net 30

A payment term indicating that full payment is due within 30 days of the invoice date.

Terms

Conditions and parameters under which credit is extended by a lender to a borrower, including the repayment schedule, interest rate, and maturity date.