The Company Cost of Capital May Be an Inappropriate Discount

question 3

Multiple Choice

The company cost of capital may be an inappropriate discount rate for a capital budgeting proposal if:

• A) it results in a negative NPV for the proposal.
• B) the proposal has a different degree of risk.
• C) the company has unique risk.
• D)the company expects to earn more than the risk-free rate.

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Definitions:

Internal Control

Mechanisms or procedures implemented by a company to ensure the integrity of financial and accounting information, promote accountability, and prevent fraud.

Hot Stove Rule

A principle in management and discipline that suggests consequences should be immediate, consistent, impersonal, and close to the action of misconduct, akin to touching a hot stove.

Progressive Discipline

The process of tying reprimands to the severity and frequency of misbehaviour.